Depreciation on Investment Property Explained

When you’re buying an investment property, depreciation probably isn’t the first thing on your mind. You’re thinking about location, yield, growth potential. That’s the right order of priorities.

But once you own the property? Depreciation on investment property becomes one of the most effective, and often underused, tools for improving your cash flow and reducing what you hand over to the Australian Taxation Office (ATO) each year.

I’ve seen investors leave thousands of dollars on the table simply because they didn’t have a depreciation schedule in place. This article breaks down what it is, how it works, and when it makes sense to act on it.

What Is Depreciation on Investment Property?

Depreciation on investment property is a non-cash deduction the ATO allows property investors to claim against the natural wear and tear of a building and its contents over time. You’re not spending extra money to claim it, it reflects the gradual decline in value of the physical asset.

There are two categories of depreciation claims under ATO property depreciation rules:

Division 43 capital works allowance covers the structural elements of a building, such as walls, roofing, flooring, and fixed internal fittings. This is claimed at a fixed rate (typically 2.5% per year) over 40 years from the date of construction.
Division 40 plant and equipment covers removable assets within the property, things like air conditioning units, carpets, blinds, ovens, and hot water systems. These are depreciated at higher rates over shorter effective lives.

Together, these two categories form the basis of a rental property depreciation claim.

Feature	Division 43 (Capital Works)	Division 40 (Plant & Equipment)
Covers	Structure & fixed elements	Removable assets
Examples	Walls, roof, tiles	Carpet, oven, AC
Rate	2.5% over 40 years	Varies (higher rates)
Claimable on second-hand?	Yes (if built after 1987)	No (unless new items installed)
Impact on cash flow	Moderate & steady	Higher in early years

How Much Can You Actually Claim?

The numbers vary depending on the age, size, and type of property. According to Mike Mortlock, Managing Director of MCG Quantity Surveyors, the average first-year depreciation deduction across their client base sits at around $9,000 to $10,000 for a typical investment property.

To put that in practical terms: if you’re earning $100,000 and you claim $9,000 in depreciation deductions, that income reduces to $91,000 for tax purposes. Depending on your marginal tax rate, that could return roughly $3,000 to $4,200 directly to you, or around $60 to $80 per week.

New builds and recently constructed properties typically generate the strongest depreciation claims because more of the construction cost is still within the claimable window. Older properties still have options, particularly where renovations have been made or plant and equipment items have been replaced.

For investors targeting a cash flow positive investment property, factoring in depreciation deductions from day one can meaningfully shift the numbers.

What Is a Quantity Surveyor Depreciation Report and Do You Need One?

A quantity surveyor depreciation report, also called a tax depreciation schedule, is a document prepared by a registered quantity surveyor that details every eligible deduction available on your property. It’s the foundational document your accountant uses when lodging your annual tax return.

The ATO accepts these reports from qualified quantity surveyors as one of the few professionals authorised to estimate construction costs for depreciation purposes. Your accountant alone can’t produce this document.

A good depreciation schedule typically costs between $600 and $800 and can be claimed as a tax deduction itself. Given that first-year claims alone often run to several thousand dollars, the upfront cost pays for itself relatively quickly.

Can You Still Claim Depreciation on an Older or Second-Hand Property?

This is one of the most common questions I get from investors, and the answer depends on a few things.

Changes introduced in the 2017 Federal Budget affected claiming depreciation on investment property for second-hand plant and equipment. Under current ATO property depreciation rules, if you purchase a residential property that isn’t brand new, you generally cannot claim Division 40 deductions on previously owned plant and equipment items.

What you can still claim on an older property:

Division 43 capital works deduction (building write-off) for properties constructed after 16 September 1987
Any new plant and equipment items you purchase and install yourself after settlement
Renovation work you complete on the property after ownership transfers to you

I often work with investors who overlook the capital works component entirely because they assume an older property has nothing to offer. That’s not always the case. A well-located property built in the 1990s may still carry years of viable capital works claims.

Can I Claim Depreciation? A Quick Checklist

Run through these four questions before speaking with your quantity surveyor or accountant:

✅ Was the property built after 16 September 1987?
✅ Have renovations been completed?
✅ Did I install new appliances after settlement?
✅ Is it an investment property (not PPOR)?

If you answered yes to any of these, it’s worth getting a quantity surveyor depreciation report. Even a partial claim can improve your annual cash flow position.

How Does Depreciation Affect Your Investment Property Cash Flow?

Property investment costs add up quickly. Running a typical investment property involves:

Property management fees (typically 7 to 10% of gross rent in Brisbane)
Council rates and water charges
Building and landlord insurance
Maintenance and repairs
Body corporate fees (if applicable)
Accountant fees
Mortgage repayments

What looks like a neutrally-geared property on paper can quickly start costing you money out of pocket once all these expenses are accounted for. Depreciation acts as a non-cash deduction, meaning it reduces your taxable income without you actually spending more money, which directly supports better investment property tax deductions and cashflow.

Many investors use a PAYG withholding variation to access the benefit weekly or fortnightly through their regular pay, rather than waiting until tax time. This can make a real difference to how manageable an investment feels month to month.

When Does Ordering a Depreciation Schedule Make Sense?

Not every property will have the same return from a depreciation report. These are the three clearest triggers I’d point investors toward:

You’ve purchased a new or near-new investment property. Construction costs are high and almost everything is eligible, meaning a depreciation schedule is almost always cost-effective from day one.
You’ve completed substantial renovations. Renovation work creates new depreciation opportunities under both Division 40 and Division 43. A quantity surveyor can document these and calculate your eligible deductions correctly.
You’re building or growing a portfolio. Maximising property investment returns across multiple properties means treating depreciation as a strategic tool, not an afterthought. The cumulative effect across a portfolio can be significant.

If you’re unsure whether your property qualifies, a quick conversation with both a registered quantity surveyor and your accountant will clarify what’s available to you. Their combined advice is worth the time.

Key Things to Know Before You Claim

You only need one depreciation schedule. It covers the full period of your ownership and gets updated if you do major works or make significant changes to the property.
Your home doesn’t qualify. Depreciation is only available on investment properties. If you live in it, it’s off the table.
It affects your cost base at sale. Every dollar you claim in depreciation reduces your cost base. That feeds into your CGT calculation when you sell, so your accountant needs to track it from day one.
Get a qualified quantity surveyor to do it. The ATO won’t accept a depreciation report prepared by just anyone. It needs to come from a registered quantity surveyor. Your accountant can refer you to one if you don’t have a contact.

How Streamline Property Buyers Can Help You Buy Better

Depreciation on investment property won’t make a poorly chosen property worth buying. But it will make a well-chosen property work harder for you financially.

What we do at Streamline Property Buyers is work with investors across Brisbane and South East Queensland to find the right property in the right location, at the right price. Before we ever put an offer together, our team will look at the whole picture, rental yield, holding costs, depreciation potential, and long-term growth outlook. It’s how good purchasing decisions get made.

If you want a second set of eyes on your strategy, or you’re ready to buy and want the process handled properly, get in touch. A free discovery call is a good place to start.

Mike Mortlock is the Managing Director of MCG Quantity Surveyors and is an industry leader in tax depreciation. Mike has worked as an expert depreciation consultant with several major firms such as McDonalds, CMC Markets, Deloitte, PwC and more. He has completed thousands of depreciation schedules for residential and commercial property and is in demand as a public speaker and property commentator having been featured in The Financial Review, ABC Radio, Domain, Real Estate.com, Sky Business and other print and radio publications.

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Depreciation on Investment Property: What You Should Know