Understanding how depreciation and property valuation work together is crucial for real estate investors in Australia. A professionally prepared depreciation schedule can significantly reduce your taxable income, while a correct property valuation ensures the schedule is based on accurate asset values.
What Is Property Depreciation?
Property depreciation refers to the decline in value of a building and its fixtures over time. For tax purposes, the Australian Taxation Office (ATO) allows investors to claim deductions for this wear and tear—reducing your assessable income.
There are two categories of depreciation investors can claim:
- Division 43 – Capital works deductions (building structure)
- Division 40 – Plant and equipment (fixtures, fittings, appliances)
What Is a Depreciation Schedule?
A depreciation schedule is a report prepared by a quantity surveyor that outlines the annual depreciation deductions an investor can claim over the life of the property—usually up to 40 years.
It itemises:
- Eligible plant and equipment
- Construction costs (capital works)
- Effective life of each item
- Yearly and cumulative deduction forecasts
Why Valuation Matters in Depreciation
Although quantity surveyors estimate construction costs, a property valuation is often used to:
- Determine the building’s overall value for apportioning land and construction costs
- Support pre-purchase tax planning
- Establish values for renovated or heritage properties
- Provide evidence for ATO in audit scenarios
For properties purchased before 9 May 2017, second-hand plant and equipment remains claimable by the investor. In these cases, a valuer helps assign accurate market values to depreciable items.
When You Need a Valuation for Depreciation
- You’ve bought a second-hand investment property
- You’ve completed renovations or extensions
- You’re unsure how to split land vs. building value
- Your property includes custom fixtures, imported fittings, or unique construction
- You’re preparing for an ATO review and need a formal record
In these situations, a Certified Practising Valuer (CPV) can provide market-based values to support or enhance your depreciation claims.
Who Can Prepare a Depreciation Schedule?
Only registered quantity surveyors are qualified to produce a depreciation schedule for tax purposes. However, they often work alongside or use data from:
- Property valuers (especially for pre-purchase or CGT considerations)
- Tax agents and accountants
- Property managers and developers
Your depreciation report must comply with ATO guidelines and include accurate, justifiable cost estimates.
How Much Can You Save with Depreciation?
A new residential investment property can generate $5,000–$15,000 in deductions in the first year alone. Commercial properties or newly renovated buildings often provide even more significant savings.
Claiming depreciation correctly can:
- Improve cash flow
- Reduce taxable income
- Maximise ROI
- Support asset planning and resale strategies
Valuation vs. Depreciation Schedule: What’s the Difference?
| Feature | Property Valuation | Depreciation Schedule |
| Purpose | Determine market value | Estimate tax deductions over time |
| Prepared by | Certified Property Valuer | Quantity Surveyor |
| Used for | Sale, finance, CGT, legal, insurance | Tax deductions (Division 40 & 43) |
| Includes | Land & building value | Asset cost breakdown and effective lives |
| Required by | Lenders, ATO, buyers, legal professionals | ATO for investor deductions |
These tools work together—valuation informs depreciation, especially when historical data is limited or the property has complex improvements.
Cost of Depreciation Schedules and Valuations in Australia
| Service | Typical Fee Range |
| Depreciation Schedule (residential) | $400 – $800 |
| Depreciation Schedule (commercial) | $700 – $2,000+ |
| Property Valuation (for depreciation) | $500 – $1,500 |
Costs vary based on the property’s age, size, location, and complexity.
Tips for Maximising Depreciation Claims
- Order a schedule as soon as you purchase the property
- Include all renovations and capital improvements
- Keep detailed records of receipts, upgrades, and installations
- Use a surveyor with experience in your property type and state legislation
- Consult your accountant to integrate the report into your tax strategy
Conclusion
A well-prepared depreciation schedule, backed by accurate property valuation, is one of the most powerful tax tools for property investors in Australia. By understanding how these reports complement each other, you can unlock significant savings while staying compliant with the ATO.
Whether you’ve just purchased an investment property or are looking to boost after-tax returns, speak to a valuer and quantity surveyor to ensure your assets are working as hard as you are.
