Save Thousands with Property Depreciation

What is property depreciation?

Property tax depreciation is the gradual wear and tear of an investment property and the assets within it over time. The Australian Taxation Office (ATO) allows property investors to claim this depreciation as a tax deduction, effectively reducing their taxable income and increasing cash flow. Understanding and leveraging the benefits of depreciation, particularly through Division 40 (Plant and Equipment) and Division 43 (Capital Works), can potentially save investors thousands of dollars every year.

Division 40 (Plant and Equipment) focuses on the depreciation of plant and equipment items within a property. These assets have limited effective lives and can be easily removed, including assets like electrical appliances, lighting fixtures and furniture. From 1 July 2017, deductions can no longer be claimed for second hand depreciating assets in your residential rental properties, so if you have purchased an established house with depreciating assets that have been used by the previous owner, you will not be able to claim depreciation on the existing fixtures and fittings.

Division 43 (Capital Works) refers to the structural elements of a building. This includes walls, floors, roofs, and structural fixtures. Unlike plant and equipment, which depreciate over their effective lives as specified by the ATO, Capital works depreciate over the life of the property.

How to claim depreciation?

Property tax depreciation is a powerful tool for property investors to save thousands of dollars through depreciation deductions. Partnering with experienced quantity surveyors and accountants can help investors maximise their deductions while remaining ATO compliant.

Obtaining a property tax depreciation schedule is the best way to guarantee receiving the maximum tax refund available. A depreciation schedule is a comprehensive report detailing all potential depreciation deductions for an investment property including both Division 40 (Plant and Equipment) and Division 43 (Capital Works). 

The 2026–27 Federal Budget has introduced significant changes to negative gearing of established residential rental properties which will commence from 1 July 2027. From this date, losses from impacted properties will no longer be deductible against other income, such as salary or business income. Instead, those deductions will only be deductible against other income from residential properties, including capital gains. Unused losses will be carried forward to be offset against future income from residential properties.

The changes will apply to established residential properties acquired after 7:30pm AEST on 12 May 2026. Properties owned or contracted before this time will be grandfathered, meaning the current negative gearing rules would continue to apply until the property is sold. This is also expected to apply where a property was owned before the changes as a principal place of residence and later becomes an investment property.

There is also a transition period. Properties acquired after Budget night can still be negatively geared until 30 June 2027.

Even if there is no immediate benefit from obtaining a depreciation schedule for an established property, due to the restrictions on negative gearing, doing so will ensure these records and deductions are available when needed. Carried forward losses from rental properties will be able to be offset against future income from residential rental properties. This could be income in future years when the rental property moves from being positively geared to being negatively geared, income from another residential rental property or a capital gain on the sale of a residential property.

BMT Tax Depreciation; the number one choice in property depreciation

H&R Block have worked with BMT for over 10 years and together, we've assisted close to 30,000 mutual clients in maximising the return on their investment properties by reducing assessable income and boosting cash flow. H&R Block therefore confidently recommend BMT Tax Depreciation to prepare your property tax depreciation schedule.

As property depreciation experts BMT can uncover every deduction you are entitled to claim, finding residential property investors an average of over $12,000 in deductions in the first full financial year alone. A BMT property depreciation schedule gives your accountant all the information they need to make accurate claims for up to forty years.

H&R Block clients can have BMT Tax Depreciation schedules prepared for a reduced fee of $805 incl. GST for residential properties (normal fee $880 incl. GST). This fee is 100 per cent tax deductible and H&R Block receives no financial gain from recommending BMT Tax Depreciation.

To take advantage of the discounted fee as an H&R Block client, contact BMT Tax Depreciation on 1300 728 726 or request a quote.

Disclaimer: This article is for educational purposes only and is not intended as financial, legal or tax advice. Professional advice should be sought before any action is taken.