What is tax depreciation?
By TaxShieldPublished Updated 3 min read
Quick answer
Tax depreciation lets owners of income-producing property deduct the decline in value of the building and its fittings over time. For a rental, claims fall into Division 43 (capital works, the building structure) and Division 40 (plant and equipment, such as appliances and carpets). A schedule lists what is eligible and each year’s deduction for your accountant.
- Tax depreciation is a non-cash deduction for the decline in value of the building and the items in it, for the periods the property earns income.
- Deductions fall into two groups: Division 43 capital works and Division 40 plant and equipment.
- For second-hand residential property bought from 9 May 2017, previously used plant and equipment generally cannot be claimed.
- A schedule documents the figures, and where costs are unknown the ATO accepts an estimate from a quantity surveyor or other independent qualified person.
- You can order one later, even if you have owned the property for years.
On this page
How does tax depreciation work?
Buildings and the assets inside them wear out. The tax law allows a deduction for that decline in value where the property is used to earn income, such as rent. It is a non-cash deduction: you do not pay anything extra each year, but the amount reduces the taxable income from the property. You can only claim for the periods the property was used for income-producing purposes, and not for any period of private use.
Whether deductions apply to your property, and how much, depends on its details and your circumstances, so your accountant confirms what you can claim.
What are the two groups of deductions?
- Division 43, capital works: the construction cost of the building and structural improvements such as extensions, driveways and fences. Generally 2.5% a year over 40 years for residential construction that commenced after 15 September 1987, with other rates and dates in the ATO’s table.
- Division 40, plant and equipment: removable or mechanical assets such as ovens, carpets, blinds, hot water systems and air conditioners, claimed over each asset’s effective life.
If the construction cost of a residential building was $300,000 and construction commenced after 15 September 1987, the capital works deduction is $300,000 × 2.5% = $7,500 a year. Your own figure depends on the actual or estimated construction cost.
Our guide to Division 40 vs Division 43 explains the rates, dates and methods in full.
Who can claim, and what is the 2017 rule?
Owners of residential and commercial investment property can claim, and for commercial property some tenants can claim on assets they own. For residential rental property bought on or after 7:30 pm AEST on 9 May 2017, the ATO says you generally cannot claim previously used (second-hand) plant and equipment, but capital works deductions are a separate rule. Read more in the second-hand property section of the guide.
What is a tax depreciation schedule?
A tax depreciation schedule is a report that lists the depreciable assets and capital works in a property and sets out the deduction available in each year. Your accountant uses it when preparing your tax return. A schedule is a practical way to document the figures, particularly where the construction cost is not known.
If you cannot determine the actual construction costs, the ATO says you can get an estimate from a quantity surveyor or another independent qualified person. TaxShield schedules are prepared with qualified quantity surveying expertise and in accordance with relevant ATO guidance and Australian taxation legislation.
When should you get a schedule?
Many investors order a schedule soon after settlement, so it is ready for their next tax return. If you have owned the property for a while and have not claimed depreciation, you can still order one: see can you backdate a tax depreciation schedule. Update it after renovations or when assets are replaced: how often should you update your schedule.
Which rule changes should you know about?
From 1 July 2027, negative gearing for residential property is limited to new builds and the 50% CGT discount is replaced for individuals, trusts and partnerships. Read our explainer on the 2027 changes.
Common questions
What is tax depreciation?
Tax depreciation lets owners of income-producing property claim a deduction for the decline in value of the building and the items in it over time. For a rental property, deductions can cover the building structure (Division 43) and plant and equipment (Division 40). Whether your property qualifies depends on its details and your circumstances.
Do I need a tax depreciation schedule?
A schedule is not itself a legal requirement, but it is a practical way to document the deductions your accountant claims. Where the actual construction cost is not known, the ATO says you can get an estimate from a quantity surveyor or another independent qualified person.
Can I claim tax depreciation on an older property?
Often yes. Capital works deductions depend on when construction commenced and what was built, and improvements may qualify under their own dates. Plant and equipment is assessed separately. Your accountant confirms what applies.
How much does a TaxShield tax depreciation schedule cost?
Residential tax depreciation schedules start from $595 + GST. Commercial properties are quoted individually because every commercial property is different. The standard turnaround is 5 business days from receipt of all required information.
Keep reading
Division 40 vs Division 43
Plant and equipment versus capital works: how each is claimed, the key dates and rates, and the 9 May 2017 rule.
Read 
What can you claim in a tax depreciation schedule?
The Division 40 and Division 43 items a residential rental can carry, in plain English.
Read
Negative gearing and CGT changes from 1 July 2027
What changes on 1 July 2027, who it affects and what it means for depreciation and your cost base.
Read
Sources (checked 11 November 2026)
General information only, not tax advice. Speak to your accountant or tax adviser about your own circumstances. TaxShield Pty Ltd ABN 79 156 400 510. TaxShield is not endorsed or certified by the ATO.
