Insight · Depreciation

Depreciation isn’t free money. Here’s my own schedule, and what it paid.

Depreciation is the most oversold number in property marketing and the least understood by the people it’s sold to. So rather than explain it in the abstract, I’m going to open my own quantity surveyor’s report (a new build I commissioned, $436,281 of construction) and walk through what it returned, how quickly it faded, and the bill that arrived at the other end.

Mia Charles · MC Acquisitions · July 2026 · ~9 min read

Two buckets, and they behave nothing alike

Every depreciation schedule splits a building into two categories, and almost every mistake I see comes from treating them as one number.

• Division 43: capital works. The structure itself: slab, frame, roof, brickwork, tiling, driveways. Claimed at 2.5% a year for forty years. Slow, flat and predictable.
• Division 40: plant and equipment. The things inside that wear out: carpet, blinds, dishwasher, oven, hot water system, air-conditioning, exhaust fans. Each has its own effective life, and the claims are heavily front-loaded.

Division 43 is the long tail. Division 40 is the burst of cashflow in the early years. Understanding which is which tells you what your third year looks like compared to your first.

My build, in real numbers

This is a 2023-completed new build in Perth’s southern corridor, assessed by Koste, a registered tax agent and chartered quantity surveying firm. Construction cost analysed: $436,281. Here is how it was carved up.

How $436,281 of construction was apportioned

Category	Amount	Share
Division 43: capital works (the structure)	$382,575	87.7%
Division 40: plant and equipment	$48,269	11.1%
Ineligible capital expenditure	$5,437	1.2%
Deductible portion of the build	$430,844	98.8%

Note the first honest point. Only 11% of the build was plant and equipment. When someone waves “huge depreciation” at you, they’re usually implying the fast-moving bucket is far larger than it is. Nearly nine-tenths of my build claims at 2.5% a year, which is real, though it arrives as a trickle rather than a windfall. The bottom row is the deductible portion of the build over the full forty years (the remaining 1.2% is not deductible).

What it paid, year by year

These are the actual entitlements from the schedule, using the diminishing value method. Year one was a nine-day part year, so year two is the first meaningful one.

Deductions available, diminishing value method

Year	Division 40	Division 43	Total deduction
1 (9 days)	$4,040	$236	$4,276
2 (first full year)	$12,366	$9,564	$21,930
3	$8,562	$9,564	$18,126
4	$6,181	$9,564	$15,745
5	$4,658	$9,564	$14,222
10	$1,065	$9,564	$10,629
20	$15	$9,564	$9,579

The part that only new builds get

In 2017 the rules changed. If you buy an established home, you can no longer claim depreciation on previously used plant and equipment: the carpet, the oven, the air-conditioner that came with the house. You inherit the structure’s remaining Division 43 claim, and nothing else.

Apply that to my schedule and the consequence is clear: the $48,269 of Division 40 would have been zero in the hands of a second-hand buyer. That is the difference between two lines in the same report, and it is the clearest cashflow difference between new and established stock. It is still not a reason to buy.

Buy a new build and you claim the whole building. Buy it second-hand and you claim the shell.

Now the cons, because this is where people get hurt

1. It fades, and it fades fast

Look again at the table. My deduction fell from $21,930 to $10,629 by year ten, less than half in under a decade. Division 40 was effectively exhausted by year twelve. Anyone modelling their cashflow on year-two depreciation and holding that flat across a twenty-year projection is building a fiction. I model the decline year by year, because the year-eight number is the one that tells you whether the asset holds itself.

2. Part of it is a loan against your future capital gain

This is the one that surprises people, and it’s rarely volunteered by anyone selling a property. Capital works deductions reduce your cost base. Claim $9,564 a year of Division 43 and, ten years on, your cost base is roughly $95,640 lower than what you paid, so the capital gain you’re taxed on at sale is $95,640 larger. Plant and equipment is squared up separately at disposal through a balancing adjustment (the tax settled on the fittings when you sell).

So does it still work? On the numbers, usually yes, and it’s worth seeing why. That $95,640 of deductions saves roughly $35,400 in tax at a 37% marginal rate, claimed in the years you claim it. Returned later as part of a capital gain eligible for the 50% discount, the same amount costs roughly $17,700. You are meaningfully ahead, and you had the use of the money for a decade in between.

It is a timing shift and a rate arbitrage rather than free money. If your marginal rate is low now and high later, or you sell in a year with an unusually large gain, the arithmetic tightens. From 1 July 2027 the CGT rules change again for individuals, trusts and partnerships: the 50% discount gives way to indexation plus a 30% minimum tax on real gains, applying to gains that accrue after that date. The legislation provides an election between methods for new builds that meet the test. That election is why the calculation has to be run on your own position rather than assumed. Your accountant confirms it; my job is making sure the deductions exist to be claimed, and that the trade-off is on the table before you buy rather than discovered at settlement of a sale.

4. Diminishing value or prime cost is a real decision

My schedule was prepared both ways. Diminishing value front-loads: $21,930 in the first full year. Prime cost spreads it more evenly: $18,763 that year, but a longer, flatter tail. Same total, different shape. If cashflow pressure is heaviest early (and with a construction loan, it usually is), front-loading wins. If you expect your income to rise sharply, flatter may serve you better. Most people are never told there was a choice.

5. It will never rescue a bad property

A schedule costs several hundred dollars and pays for itself many times over, so get one. But depreciation is a rebate on money you have already spent. It cannot fix a lot on a floodplain, an oversupplied street, a builder who folds mid-build, or a price that was 10% too high on the day you signed. I have seen investors talk themselves into a weak asset because the depreciation looked exciting. The depreciation was real; the asset was still weak.

Where two dwellings change the shape

A dual occupancy is two complete homes, so it carries two of everything that sits in the fast bucket: two kitchens, two sets of appliances, two hot water systems, two air-conditioning systems, two lots of floor coverings and blinds. Proportionally more of the build lands in Division 40 than in a single dwelling of comparable value, which lifts the early-year deductions.

I won’t put a number on that here, because it depends entirely on the build contract, the inclusions and the quantity surveyor’s apportionment. Inventing a figure would be the behaviour this article exists to argue against. What I will say is that it’s a measurable structural advantage, and it belongs in the feasibility before you commit rather than as a pleasant discovery afterwards.

How I use this

Depreciation is an input to the decision rather than a reason for it. In practice that means I brief the quantity surveyor you engage directly, get a full schedule drawn for each dwelling, fold the real year-by-year decline into the twenty-year model, and then run the whole feasibility again with the tax benefit stripped out entirely, to see whether the asset stands up on its own. If it only works with depreciation in it, it doesn’t work.

Depreciation should be the reason a good asset performs better than expected, never the reason a mediocre one looked acceptable.

General information only, prepared as property research (current at August 2026). It is not taxation, financial product or legal advice and must not be relied on as such. Depreciation entitlements are specific to each property, each build contract and each owner’s circumstances; the figures above relate to one property and should not be treated as typical or transferable. Marginal-rate and capital gains illustrations are simplified and ignore other income, holding structures, ownership shares and Medicare levy. Depreciation schedules must be prepared by an appropriately qualified quantity surveyor, and how any of this applies to you is a matter for your own registered tax agent or accountant. Information on this page is current as at September 2026. Planning schemes, tax law and cost figures change; where a figure matters to a decision, I re-check it against the source at the time rather than relying on what is written here.