Property depreciation is one of the most valuable tax benefits available to Australian property investors, and one of the least well understood.
Many investors know the term but cannot explain exactly what it covers, how it is calculated, or how to access it. That gap costs money. Depreciation is a legitimate, legal tax deduction that reduces an investor's taxable income every year, and most investors who own new or relatively new properties are not claiming everything they are entitled to.
Depreciation is the decline in value of an asset over time due to wear and use. For tax purposes, the Australian Taxation Office allows investors to claim this decline as a deduction against their taxable income, reducing the amount of tax they pay each year.
For property investors, depreciation deductions come from two categories.
Division 43 - Capital Works Deductions. This covers the structural elements of the building itself -- the walls, floors, roof, windows, doors, and other fixed structural components. The ATO allows investors to deduct 2.5% of the original construction cost of these elements each year over 40 years from the date of construction.
Division 40 - Plant and Equipment Depreciation. This covers the removable fixtures and fittings within the property, carpet, appliances, air conditioning units, hot water systems, blinds, ceiling fans, and so on. These items have individual effective lives determined by the ATO and are depreciated at a higher rate than the building structure.
The dollar value of depreciation deductions varies significantly depending on the age of the building, the quality of the fit-out, and the purchase price.
A new apartment purchased for $800,000 with a construction cost component of $600,000 could generate Division 43 deductions of approximately $15,000 per year. Division 40 deductions on the plant and equipment in a quality new apartment might add another $5,000 to $8,000 in the first year, declining in subsequent years as the items depreciate.
An established property built more than 40 years ago generates no Division 43 deductions, the 40-year period has expired. Plant and equipment deductions on established properties purchased after 9 May 2017 are also significantly limited. Investors can only claim depreciation on new plant and equipment they install themselves, not on items already in the property at the time of purchase.
This is the primary reason new properties generate significantly higher depreciation deductions than established properties for investors.
2017 changes. From 9 May 2017, investors purchasing established residential properties can no longer claim depreciation on existing plant and equipment. Only new items they install themselves are depreciable. New properties purchased after this date are not affected, investors can still claim full depreciation on all plant and equipment in a new build.
2026 budget changes. The May 2026 federal budget restricted negative gearing on established residential properties purchased after Budget night. New builds retained full negative gearing. Combined with the 2017 depreciation changes, this means the tax environment now actively favours new property investment over established property investment in two separate dimensions simultaneously.
For investors doing the analysis, a new off the plan apartment purchased in 2026 offers full negative gearing, full plant and equipment depreciation, and Division 43 deductions across the full 40-year life of the building. An established property purchased in 2026 offers restricted negative gearing and no plant and equipment depreciation on existing items.
To claim depreciation deductions properly, investors need a depreciation schedule, a report prepared by a qualified quantity surveyor that identifies all depreciable elements of the property and calculates their value.
A depreciation schedule typically costs $500 to $700 for a standard residential investment property and is itself tax deductible. It is prepared once and updated only if significant renovations are made to the property.
The schedule is provided to the investor's accountant, who uses it to prepare the annual tax return and claim the appropriate deductions.
Most investors who own new properties without a depreciation schedule are leaving money on the table every year. Getting a schedule prepared is one of the simplest and most straightforward tax optimisation steps available to any property investor.
For investors whose strategy includes maximising depreciation benefits, new off the plan properties through Coposit are the most efficient entry point available in the current market.
A new apartment secured through Coposit with $10,000 upfront and weekly interest-free instalments during construction settles as a brand new property. Full Division 43 deductions apply from the date of construction. Full plant and equipment depreciation applies to all items in the property. And full negative gearing applies under the 2026 budget settings.
That combination of full negative gearing, maximum depreciation, and the capital efficiency of the Coposit instalment structure represents the most complete tax and financial picture available to residential property investors in Australia in 2026.
Browse current investment listings on the Coposit projects page, download the app, or contact the team to understand which projects suit your investment strategy.
This article is general information only and does not constitute financial or tax advice. Always seek independent financial and tax advice before making any investment decisions.
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