How to calculate tax depreciation for rental property?

To calculate tax depreciation, you need a depreciation schedule prepared by a qualified quantity surveyor. This outlines deductions for capital works (building structure, e.g., walls, roofs) at 2.5% per year over 40 years for properties built after 15 September 1987, and plant and equipment (removable assets like appliances) based on their effective life using either the prime cost (fixed annual deduction) or diminishing value (higher initial deductions) method. Follow this link for the calculation.

What is the $300 depreciation rule?

The $300 rule allows an immediate deduction for depreciating assets costing $300 or less, used for income-producing purposes (e.g., rental property items like small appliances), instead of depreciating them over time. However, if assets form a set (e.g., dining chairs) costing over $300 combined, they must be depreciated, not immediately deducted.

Can I claim tax depreciation on old property?

Yes, you can claim depreciation on older properties, but capital works deductions are only available for properties built or renovated after 15 September 1987 at 2.5% per year. For plant and equipment, second-hand properties purchased after 9 May 2017 can’t claim depreciation on existing assets, only new ones you install. A quantity surveyor can assess eligible deductions.

Is it worth claiming depreciation on rental property?

Claiming depreciation is worthwhile! It’s a non-cash deduction, meaning no out-of-pocket expense, and can save thousands annually (e.g., ~$7,000 in the first year for some investors). It reduces taxable income, boosts cash flow, and is especially valuable for new or renovated properties. Always get a professional depreciation schedule to maximise benefits

About Tax Depreciation

Boost your investment property's returns with tax depreciation. Claim deductions on property wear and tear to reduce taxes and increase cash flow.

What is Tax Depreciation in Australia?

Tax depreciation is recognised by the Australian Taxation Office (ATO) as a method for property investors to claim natural depreciation on wear and tear as tax deductions to reduce their taxable income and improve cash flow.

📌 It is the second biggest deduction on tax, after interest.

Why to Claim?

Claiming tax depreciation can make a big difference to your tax bill and cash flow. On average, property investors claim thousands of dollars in depreciation deductions in their first financial year, helping to lower overall tax payable.

Who needs to claim?

Property investors who own income-producing residential or commercial properties are entitled to claim tax depreciation. It can be claimed for both new and old investment properties.

What can be claimed?

You can claim depreciation on your investment property’s assets under two main categories: Division 40 (plant and equipment Deduction) and Division 43 (capital works deductions).

Plant and Equipment Depreciation (Division 40)

Division 40 of the Income Tax Assessment Act 1997 allows Australian property investors and businesses to claim tax deductions for over 6,000 ATO-recognised plant and equipment assets, such as easily removable items like carpets, blinds, appliances, or machinery used to generate income in residential or commercial properties. Assets must be owned and have a limited effective life as per ATO guidelines.

Use the prime cost method for even deductions or diminishing value for bigger early savings; small businesses (turnover under $10 million) can write off assets under $1,000. Post-May 2017, restrictions apply to second-hand residential property assets. Keep records for five years, as disposals may trigger a taxable gain or loss.

Residential Properties: Common depreciable plant & equipment items

air-conditioner as a div 40 depreciation asset

Air-Conditioning units

Carpets & floating timber flooring

curtain and blinds as a div 40 depreciation asset

Blinds & Curtains

Light fittings

Commercial Properties: Common depreciable plant & equipment items

Office furnitures

Commercial ovens

security-camera as a div 40 depreciation asset

Security systems

Lifts

Learn more on Division 40 (Plant & Equipment Depreciation)

Capital Works Deductions (Division 43)

Under Division 43 of the Income Tax Assessment Act 1997, Australian property investors and businesses can claim tax deductions for construction costs of a building’s structure and fixed items, like kitchen cupboards, doors, and sinks, used to generate income in residential or commercial properties. These capital works, forming 85–90% of depreciation claims, must relate to buildings or extensions started after 15 September 1987.

Deductions are calculated at 2.5% or 4% annually, based on property type and construction date per ATO rules. Owners or lessees must keep cost records for five years, noting that post-May 2017 restrictions may limit claims for second-hand residential properties.

Residential Properties: Common depreciable capital works

brickwall as a div 43 depreciation asset

External & Internal walls

Bathtubs & Shower Screens

swimming-pool as a div 43 depreciation asset

Swimming pools

Kitchen Cabinetry, Benchtops

Commercial Properties: Common depreciable capital works

Structural ceilings

Integrated toilet cubicles

Car parks & Driveways

Fire sprinkler systems

Learn more on Division 43 (Capital Works Deductions)

How to Claim Affordable Tax Depreciation for your Property?

To claim tax depreciation on your investment property, you need an ATO-compliant tax depreciation schedule prepared by a certified quantity surveyor.

At Thrifty Tax, our cost-effective packages help you maximise deductions and boost your property’s cash flow. Our simple 3 step process ensures everything is completed efficiently and within your budget.

Get an Instant Estimates

Input property details into Thrifty Tax’s online tool for a free, instant estimate in 3 minutes.

Order a Depreciation Report

Choose an affordable Thrifty Tax package and provide property details for an ATO-compliant schedule.

Claim Depreciation Deductions

Receive your schedule in 5 business days, submit with your tax return, and boost cash flow.

Common Frequently Asked Questions(FAQs)

How to calculate tax depreciation for rental property?
To calculate tax depreciation, you need a depreciation schedule prepared by a qualified quantity surveyor. This outlines deductions for capital works (building structure, e.g., walls, roofs) at 2.5% per year over 40 years for properties built after 15 September 1987, and plant and equipment (removable assets like appliances) based on their effective life using either the prime cost (fixed annual deduction) or diminishing value (higher initial deductions) method. Follow this link for the calculation.
What is the $300 depreciation rule?
The $300 rule allows an immediate deduction for depreciating assets costing $300 or less, used for income-producing purposes (e.g., rental property items like small appliances), instead of depreciating them over time. However, if assets form a set (e.g., dining chairs) costing over $300 combined, they must be depreciated, not immediately deducted.
Can I claim tax depreciation on old property?
Yes, you can claim depreciation on older properties, but capital works deductions are only available for properties built or renovated after 15 September 1987 at 2.5% per year. For plant and equipment, second-hand properties purchased after 9 May 2017 can’t claim depreciation on existing assets, only new ones you install. A quantity surveyor can assess eligible deductions.
Is it worth claiming depreciation on rental property?
Claiming depreciation is worthwhile! It’s a non-cash deduction, meaning no out-of-pocket expense, and can save thousands annually (e.g., ~$7,000 in the first year for some investors). It reduces taxable income, boosts cash flow, and is especially valuable for new or renovated properties. Always get a professional depreciation schedule to maximise benefits