One deduction on an investment property costs you nothing this year. No invoice. No cash out. Depreciation, claimed through a depreciation schedule prepared by a quantity surveyor, lets you write off wear on the building and its fittings, money that was spent when the place was built, sometimes before you ever owned it.
And since the May 2026 federal budget steered negative gearing towards new builds, depreciation has moved from a line your accountant tidies up in July to the centrepiece of investment property maths.
The timing is not incidental. The RBA lifted the cash rate three times in 2026 and held it at 4.35% in June, which thins out buyer competition but sharpens every holding cost. Meanwhile the budget passed in May is now law: buy an established property after 12 May 2026 and, from 1 July 2027, the rental loss stops offsetting your salary. It is quarantined instead, still deductible against your rental income or the eventual gain, and carried forward until it is used. New builds keep the wage offset. Existing holdings keep their negative gearing untouched. If your next purchase happens under these rules, depreciation is the number that decides which side of that line you want to be on.
What is a depreciation schedule, and how does it pay you?
A depreciation schedule is a one-off report, prepared by a quantity surveyor, itemising what you can claim each year for the decline in value of your investment property: the building itself and the plant and equipment inside it. The ATO splits the claim in two. Division 43 covers capital works, the bricks, concrete and built-in structure, claimable at 2.5% a year for 40 years on residential buildings constructed after 15 September 1987. Division 40 covers plant and equipment: ovens, carpets, air-conditioners, blinds, hot water systems.
You pay for the report once. The fee is itself deductible, and the schedule keeps producing claims for as long as you own the property, up to 40 years of them.
Most deductions work the same way: spend a dollar, get up to 47 cents back at the top marginal rate. Depreciation inverts that. It is a paper deduction for construction money spent years before you arrived, so the refund lands in your pocket while your bank balance never moves. Accountants call it the non-cash deduction. Missing it stings more than losing any receipt.
Why does the May 2026 budget make depreciation matter more?
Follow the chain. The budget kept wage-offset negative gearing for new builds only: on established property bought after 12 May 2026, rental losses are quarantined from 1 July 2027, deductible against rental income or the eventual gain and carried forward, rather than offsetting salary. That pushes the next wave of investors towards buying or building new. And new builds are exactly where depreciation runs largest: a fresh 40-year Division 43 clock, plus brand-new plant and equipment claimable from day one.
Put those together and depreciation stops being a side dish. On a new build it is typically the biggest deduction after loan interest, and often the line that tips the property into the tax loss that negative gearing offsets against your wage. On a post-budget established purchase, that wage offset disappears from July 2027, so every deduction has to work against the rent, or sit carried forward until the sale.
There is a quieter flip side. At the time of writing, rents in most capitals are still climbing and vacancies are tight, so more properties are drifting towards positive gearing. A depreciation schedule earns its keep there too: paper deductions shelter rental profit that would otherwise be taxed at your marginal rate, no salary offset required.
New build vs established: how wide is the gap?
Wider than most investors realise, and it widened in 2017. Since 9 May 2017, buyers of established residential property cannot claim depreciation on the second-hand plant and equipment that comes with it. The oven, the carpet, the split system: if a previous owner used them, the deduction died at your purchase. Division 40 now only applies to new items you install yourself. Division 43 survives, but only for buildings constructed after 15 September 1987, and the 40-year clock has been running since the concrete cured.
| Brand-new build | Established (bought after 9 May 2017) | |
|---|---|---|
| Capital works (Division 43) | Full 2.5% a year on a fresh 40-year clock | Only if built after 15 Sep 1987, with the clock partly run down |
| Plant and equipment (Division 40) | Claimable on everything from the oven to the blinds | Not claimable on existing items; only new ones you add |
| Wage-offset negative gearing (purchases after 12 May 2026) | Kept | Quarantined from 1 July 2027: losses offset rental income or the eventual gain, and carry forward |
| Typical first-year claim | Often five figures | Often a few thousand dollars, sometimes nil |
We've seen settlement packs holding a building report, a pest report and a conveyancer's invoice, with no depreciation schedule anywhere; five years on, an accountant finds five figures of unclaimed Division 43 sitting in the file. The ATO generally lets individuals amend only their last two returns. Everything older is gone.
What does the gap look like in dollars?
Dr Ellison is an emergency consultant in Townsville on the top marginal rate. She has equity ready to deploy and two shortlisted properties at $780,000 each. Same price, very different tax engines.
Path A: a brand-new townhouse at North Lakes, north of Brisbane. The quantity surveyor puts construction and fitout at $420,000. Division 43 delivers about $10,500 a year for 40 years. Division 40 adds roughly $7,500 in year one on the new fittings under the diminishing value method. Call it $18,000 of paper deductions, worth about $8,460 back at her 47% marginal rate (including Medicare levy), without spending a cent that year. And because it is a new build, the loss keeps offsetting her hospital salary beyond 1 July 2027.
Path B: a 1993-built house in an established street nearby. Original construction cost around $150,000, so Division 43 yields roughly $3,750 a year, and that clock expires in 2033. The second-hand fittings claim nothing under the 2017 rule. Year-one deductions: about $3,750, worth roughly $1,760 in her hands. Because she signed after 12 May 2026, any rental loss stops touching her salary from July 2027.
The gap: around $14,000 a year in deductions, about $6,700 a year in cash at her marginal rate, before the negative gearing treatment even enters the comparison.
Based on typical scenarios. Individual outcomes vary.
How do you get a schedule, and what should you do this month?
Commission it at settlement, from a quantity surveyor. Where construction costs are unknown, the ATO accepts a quantity surveyor's estimate; your accountant is not permitted to guess them. The fee is a one-off, deductible in the year you pay it, and reputable surveyors typically say upfront when an older property has too little left to claim to justify the report.
Then let the schedule feed the bigger decisions. Several lenders add depreciation back when assessing your rental income, because the deduction never left your bank account, and that treatment changes what you can borrow for the property after this one. The Wity Borrowing Power Assessment models your capacity across 45+ lenders rather than one bank's calculator, which is how the depreciation on property one becomes part of the case for property two.
Structure matters on the way in as well. Under specialist lending policies available through Wity, any investor can take an investment loan at up to 85% LVR with no LMI, a waiver investors rarely get from mainstream lenders, and for doctors and dentists the threshold rises to 95%. At 85% on a purchase like Dr Ellison's, the LMI that most lenders would charge runs roughly $12,000 to $16,000. Kept, not paid.
If this is your first purchase, start with our step-by-step first investment property guide; if it is your third, the same numbers drive portfolio strategy. Either way, the schedule is a settlement-week job, not a June panic. Order it early and the full year's claim is ready at tax time.
Weighing a new build against an established buy before the 2027 rules bite? Start the Wity questionnaire → and we'll model both paths, depreciation included. Free, no obligation, and the numbers are yours to keep.