Understanding Tax Depreciation for Melbourne Property Investors

Owning an investment property in Victoria comes with ongoing expenses for mortgage repayments, insurance, maintenance, and management fees. But there’s one often-overlooked benefit that can help offset those costs: tax depreciation. 

Depreciation is one of the most effective (and completely legal) ways to maximise your property’s cash flow. It allows investors to claim the natural wear and tear of the building and its assets over time as a tax deduction. 

And while many investors assume older homes don’t qualify, the reality is that most properties new or old have something to claim. 

Here’s what you need to know. 

What Is Property Tax Depreciation? 

Depreciation is the decline in value of an asset over time. For investment properties, the Australian Taxation Office (ATO) allows owners to claim that loss in value as a deduction against rental income. 

There are two key categories: 

Division 43 – Capital Works Deductions 

Covers the building structure and fixed assets such as: 

• Walls, doors, windows, and roofs 

• Built-in cabinetry, tiling, brickwork, and concrete 

• Electrical and plumbing infrastructure 

Claim period: Up to 40 years from the property’s completion date. 

Division 40 – Plant and Equipment Deductions 

Covers removable or mechanical assets such as: 

• Carpets, blinds, and curtains 

• Hot-water systems and air-conditioning units 

• Ovens, cooktops, dishwashers, and lighting 

Each item has its own “effective life,” which determines how quickly it can be depreciated and how much you can claim each year. 

Why It Matters for Melbourne Investors 

For investors in Melbourne, depreciation can make a significant difference to your after-tax return: 

• Improves cash flow: Reduces the tax you pay each year. 

• Increases yield: Adds thousands to your post-tax income annually. 

• Applies broadly: Whether it’s a CBD apartment, a period home in Fitzroy, or a new townhouse in Doncaster, most properties qualify for at least some deductions. 

What You Can Claim in Victoria 

The age and condition of your property determine what you can claim: 

Important: The ATO allows building depreciation (Division 43) for properties constructed after 16 September 1987, but renovations or extensions after that date are still claimable. 

Don’t Miss Out: Updating Your Depreciation Schedule 

One of the biggest mistakes property investors make is failing to update their depreciation schedule after completing renovations, replacements, or upgrades. 

If you’ve replaced flooring, installed new lighting, added an air-conditioning unit, or renovated a bathroom these are all newly depreciable assets. 

Without updating your schedule, you’re effectively leaving money on the table. 

Why this matters: 

• Even older, second-hand properties may contain qualifying new assets added after purchase. 

• Renovations can restart depreciation entitlements, allowing you to claim for new works and improvements. 

• Updating ensures your accountant applies accurate effective lives and values for each asset. 

Example: 
If you’ve installed a new dishwasher and carpets, both are eligible for depreciation. But unless they’re recorded in an updated schedule, you can’t claim them potentially losing hundreds (or even thousands) in deductions. 

How to Access and Maintain Your Depreciation Entitlements 

To claim depreciation correctly, you’ll need a Tax Depreciation Schedule prepared by a qualified Quantity Surveyor. 

A professional schedule will: 

• Identify and value every depreciable asset in your property 

• Separate Division 43 (building) and Division 40 (plant) items 

• Provide a year-by-year forecast of deductions for your accountant 

Schedules typically last up to 40 years, but they should be reviewed whenever: 

• You complete renovations or upgrades 

• You install new fixtures or appliances 

• You replace structural elements like bathrooms or kitchens 

The cost of preparing or updating a depreciation schedule is 100% tax deductible in the year it’s incurred. 

What If You Haven’t Been Claiming? 

It’s not too late to start. 

If you haven’t claimed depreciation in previous years, your accountant can request amendments to prior tax returns (generally up to two years back for individuals, or four years for trusts and companies). 

This allows you to recoup missed deductions and improve your overall financial position. 

Even properties purchased years ago may still qualify especially if upgrades or replacements have occurred since. 

Case Example – New Apartment in Melbourne’s Inner East 

• Purchase price: $750,000 

• Construction year: 2024 

• Estimated first-year depreciation: ~$12,000–$15,000 

• Tax impact: For an investor in the 37% tax bracket, this equates to a saving of around $4,400–$5,500 in the first year alone. 

(Actual results depend on property type, build cost, and included assets.) 

Renovations and Upgrades: The Key to Unlocking More Deductions 

Renovations and asset upgrades don’t just improve a property’s appeal they can deliver ongoing tax advantages. 

Examples include: 

• Bathroom or kitchen renovation: Claim new fixtures and capital works. 

• Replacing flooring or blinds: Claim under Division 40 as plant and equipment. 

• Adding air conditioning or heat-pump hot water: Claim depreciation on the full cost. 

• Energy-efficient upgrades: New systems start a fresh depreciation cycle immediately. 

Keeping receipts and documentation is essential. These records support your claims and simplify updates if audited. 

What This Means for Investors 

Tax depreciation is one of the simplest, most powerful tools available to Melbourne property investors. 
It can: 

• Improve cash flow 

• Reduce taxable income 

• Maximise return on upgrades and improvements 

• Support accurate, compliant tax reporting 

Whether your property is new or decades old, chances are you’re entitled to claim more than you think. 

Want to make sure you’re claiming everything you’re entitled to? 
Talk to LongView’s Property Management team. 
We can connect you with trusted Quantity Surveyors and help ensure your investment is working as hard as possible for you, not the tax office