There's a moment that happens in a lot of investment property conversations. Someone says "and of course you'll get the depreciation," as if that settles something. Everyone nods. And privately, half the room is thinking: I have no idea what that means, and now it feels too late to ask.
What it actually is
In plain English: when you own something that earns you income, the tax office accepts that the thing slowly wears out — the carpet ages, the oven ages, the building itself gradually deteriorates. Depreciation is the tax system letting you claim a slice of that wearing-out as a deduction each year, which lowers your taxable income and so your tax bill. It's a "non-cash" deduction: unlike interest or rates, you're claiming it without spending anything that year.
The two buckets
Bucket 1 — the building (Div 43)
- Bricks, concrete, roof, walls
- 2.5% of original build cost per year
- Claimed slowly, over 40 years
Bucket 2 — the fit-out (Div 40)
- Carpet, blinds, dishwasher, air-con
- The removable stuff
- Wears out faster → depreciated faster
The 2017 rule change almost no one explains
On 9 May 2017, the rules changed. For residential property bought after that date, you generally can no longer claim depreciation on second-hand plant and equipment — the stuff already in the property when you bought it. Buy an established home today, and the existing oven, carpet and blinds give you nothing; you can only claim on items you buy new and install yourself. The building bucket was not touched — if it was constructed after September 1987, you can still claim the 2.5% capital works deduction regardless of how many owners it's had.
Who prepares it — and the catch
A depreciation schedule is a one-off report listing everything you can depreciate and exactly how much you can claim each year. It's prepared by a quantity surveyor — a specialist the tax office specifically recognises — not your accountant. It costs a few hundred dollars (itself deductible), and a reputable one will give you a free upfront estimate and tell you honestly if the claim won't beat the cost. One thing nobody volunteers: when you eventually sell, the building depreciation gets added back onto your profit for capital gains tax. So it behaves a bit like buy-now-pay-later — you enjoy the benefit each year, and a slice falls due at the end.
The golden rule
Never buy a property because of the depreciation. The tax tail should never wag the property dog.
New properties do have the richest deductions — that's real. But we've watched the tax benefit used to paper over properties that simply weren't good buys. Pick the property worth owning in twenty years, then let the quantity surveyor find every dollar of depreciation it happens to come with.
This article is general property market information only — it isn't financial, tax, legal or investment advice. Your specific situation should always be discussed with a qualified, licensed professional (financial adviser, mortgage broker, tax agent or solicitor) before you make any decisions. FiveFold Property Partners helps clients buy property; we are not licensed financial advisers.