When you purchase an investment property in Australia you can begin depreciating a lot of the assets. Probably the largest asset you get to depreciate is going to be the actual building itself.

Residential investment buildings in Australia can be depreciated over 40 years - a rate of 2.5% per year - and only using the Prime method. Calculating your building depreciation is pretty straightforward:

Depreciation per year = Cost of building / 40

For example: If a building cost $100,000 to build then depreciation per year is:

$100,000 / 40 = $2,500 per year

That’s $2,500 in depreciation per year for the building. We’ll look at other assets and depreciation rates in another post.

After you’ve had a Quantity Surveyor identify your list of items to be depreciated, you’ll usually get a report. However there is no standard for this report and often they’re suited for accountants and not for entering into the ATO’s E-Tax software.

Further, if you ever need to add a new item or dispose of, sell or replace any of the original items then your report is no longer correct. Printed reports become obsolete as soon as any of the items change.

So, coming soon to this site will be some software where you’ll be able to enter your items from your Quantity Surveyor’s report plus add any new items, write-off old items and see the depreciation for up to 40 years.

What is a depreciation report?

In Australia, a depreciation report usually has two parts:

1. A Quantity Surveyor’s Report and;
2. A Depreciation Schedule.

The Quantity Surveyor’s Report is an itemised list of items in the property, along with their estimated current values. If you know the cost of an item, you don’t need to have it estimated as you can use the actual cost, but if you’ve bought a property that was already built you will need to get an itemised list.

The itemised list will include both “plant and equipment” and “capital works”.

The Depreciation Schedule takes the values provided by the Quantity Surveyor and calculates the amount of deductible value for each item for each year. As “capital works” are deductible over 40 years, the depreciation schedule should cover 40 years. The period of time that each item needs to be depreciated over is determined by the Australia Tax Office.

The amounts listed in the Depreciation Schedule can then be used in a tax return to offset income.

A Depreciation Schedule should also take into account other rules such as “low value pools” which we’ll look at in more detail in a later post.

Depreciation Reports save investors money. In Australia, depreciation reports are an essential document for any property investor. They outline how much depreciation you can claim in your tax return for all the individual items that depreciate within a property.

When doing your tax return, you can offset against your income, any depreciation on things that make up your property. You can depreciate everything from the tap fittings, carpet and even the building itself.

The author of this website has had many depreciation reports done in the past and found a great deal of difference between them. As such we will be reviewing the reports provided by the various depreciation report providers in Australia.

We look forward to providing you with useful information on what a depreciation report is, why you should get one and the best places to do so.