July 16, 2025
What is Tax Depreciation?
Tax depreciation is a legitimate tax deduction that allows owners of income-producing properties to offset the wear and tear of a building and its assets over time. It is governed by the Income Tax Assessment Act 1997 and administered by the Australian Taxation Office (ATO).
There are two main categories:
- Division 43 (Capital Works): Building structure and fixed items.
- Division 40 (Plant & Equipment): Removable or mechanical assets.
A tax depreciation schedule, prepared by a qualified Quantity Surveyor such as TDQS, calculates these deductions over the property’s effective life.
Why Depreciation Matters in Commercial Property
For commercial property investors, depreciation can be the difference between a marginal and high-performing asset. Key benefits include:
- Reduced taxable income and increased after-tax cash flow
- Enhanced return on investment (ROI)
- Strategic insights into asset lifecycle planning
- Support for capex budgeting and financial modelling
Depreciation is the second-largest tax deduction for most commercial investors after interest expenses.
Two Types of Commercial Property Depreciation
Division 43: Capital Works
- Applies to buildings constructed after 20 July 1982
- Deducted at 2.5% per year over 40 years
- Includes concrete slabs, roofing, paving, and fire protection systems
Division 40: Plant and Equipment
- Depreciated over effective life as defined by ATO
- Includes HVAC, lifts, security systems, commercial kitchen equipment
Who Can Claim Commercial Tax Depreciation?
- Fund managers
- Property trusts (REITs)
- High-net-worth individuals (HNWIs)
- SMEs in leased premises
- Accountants acting for clients
- Developers leasing completed stock
Note: Both owners and tenants can claim, depending on who paid for the improvements.
How to Maximise Commercial Depreciation Deductions
- Engage TDQS early: ideally during due diligence phase
- Use a fixed asset register: for real-time tracking
- Identify instant deductions: e.g., assets under $20,000 (FY24 & FY25)
- Claim scrapping value: for demolished or replaced assets
- Backdate missed depreciation: up to 2 years
- Segment assets by use: especially in strata and multi-tenant buildings
Most Commonly Overlooked Depreciation Opportunities
- Base-building plant (HVAC, lifts)
- Outdoor assets (paving, bike racks, shade sails)
- Tenant fit-outs funded by landlords
- Fire and security upgrades
- CapEx post-acquisition not logged
- Leased but owned equipment
Real-World Example: $50M Office Building
Coming soon: We’ll update this section with a real project breakdown showing millions in deductions recovered by TDQS for a national property fund.
How TDQS Stands Apart from Other Quantity Surveyors
- Regulated by RICS and registered with the Tax Practitioners Board
- Utilises AI-powered asset registers
- Trusted by REITs, syndicates, and retail centre owners
- Exclusive focus on commercial property
- Offers strategic advice, not just compliance reports
Frequently Asked Questions (20 FAQs)
- What is a tax depreciation schedule?
- A report prepared by a Quantity Surveyor that outlines allowable depreciation deductions for a property over time.
- How much can I typically claim on a commercial building?
- Between $50,000 to $2M+ depending on cost and asset type.
- Can I claim depreciation on an older property?
- Yes — especially if updated post-1982 or with qualifying equipment.
- How far back can I amend returns?
- Up to two financial years per ATO guidelines.
- Do tenants get to claim depreciation?
- Yes — for their fit-out and improvements.
- What is the effective life of commercial assets?
- Set by the ATO. Example: Lifts (30 years), Security (5 years).
- Is depreciation affected by strata ownership?
- Yes, claims are proportional to ownership of common areas.
- Can I claim depreciation on overseas properties?
- Only if it earns income taxable in Australia.
- What’s the difference between Division 40 and 43?
- Division 40 = Plant & Equipment; Division 43 = Building works.
- Can I backdate if I didn’t get a schedule at purchase?
- Yes, with supporting documentation.
- Do fit-outs have different rules?
- Yes — often short-lived and high in deduction value.
- How is renovation depreciation calculated?
- Estimated by a QS using accepted costing methods.
- What if I sell the property?
- Depreciation claimed may impact capital gains tax (CGT).
- What’s the cost of a schedule?
- $2,000–$5,000 depending on complexity. It’s deductible.
- Can I depreciate land?
- No. Land is not depreciable in Australia.
- Should I get a second opinion?
- Yes. TDQS often finds missed claims worth six figures.
- Which industries benefit most?
- Retail, Healthcare, Hospitality, Office, Industrial.
- Does lease term matter?
- Not for deductions, but it affects asset write-off planning.
- How long does TDQS take?
- 7–10 business days after property inspection and data review.
- What are the risks of not having a schedule?
- Overpaying tax, audit issues, and underutilised assets.
Conclusion & Next Steps
For commercial property investors, depreciation isn’t just a tax formality — it’s a strategy. With the right guidance, millions in deductions can be uncovered, preserved, and reclaimed.
TDQS is here to help every step of the way, from acquisition due diligence to asset disposal.
Ready to unlock your property’s hidden value?
- ✅ Visit www.tdqs.com.au
- ✅ Request a free depreciation review
- ✅ Maximise your after-tax returns today
