What is a rental property depreciation schedule and do I need one in Australia?

A depreciation schedule (also called a tax depreciation report) is a document prepared by a qualified quantity surveyor that outlines the depreciable assets in your investment property and the deductions you can claim each year for their decline in value.

Two types of depreciation you can claim:

• Division 43 (capital works/building allowance): This covers the structural elements of the building — walls, roof, flooring, windows, etc. For residential properties, you can claim 2.5% per year of the original construction cost if the building was constructed after 16 September 1987. For commercial properties, it is 4% per year. You can only claim this if you can establish the original construction cost.
• Division 40 (plant and equipment): This covers removable fixtures and fittings — carpets, blinds, dishwashers, hot water systems, air conditioning units, etc. Each item has an ATO-specified effective life and is depreciated accordingly.

Do you need a quantity surveyor? The ATO accepts that a quantity surveyor is one of the few professionals with the specialist knowledge to estimate construction costs for Division 43 purposes. For older properties where you do not know the original construction cost, a QS report is essentially the only way to claim the building allowance. Division 40 claims on plant and equipment can often be supported by purchase receipts, but a QS report will typically identify items you would otherwise miss.

Important change since 2017: For properties purchased after 7:30pm on 9 May 2017, you can no longer claim Division 40 depreciation on second-hand plant and equipment — only on new items you install yourself. This significantly reduced depreciation claims on established investment properties for new purchasers.