A Tax Depreciation Schedule (also known as a Quantity Surveyor's Report or Depreciation Report) is a document prepared by a qualified Quantity Surveyor that details all the tax deductions available to owners of income-producing properties. Understanding how to read your schedule is important so that you can correctly apply the deductions when lodging your annual tax return.
What Does a Depreciation Schedule Contain?
An MTD Tax Depreciation Schedule is comprehensive and structured to cover your investment property for its entire claimable life of 40 years. The schedule is divided into two main categories of deductions:
Division 40 – Plant & Equipment
This section lists all individual depreciable assets within the property. Each asset is identified, described, and assigned an effective life in accordance with the ATO's Tax Ruling. Common items include:
- Carpets and floor coverings
- Blinds and curtains
- Hot water systems
- Air conditioning units
- Cooking appliances and dishwashers
- Light fittings and exhaust fans
- Security and intercom systems
Each item shows the cost, the effective life, the depreciation method used (Prime Cost or Diminishing Value), and the annual deduction for each year of the schedule.
Division 43 – Capital Works (Building Write-Off)
This section covers the building structure itself and permanently fixed items. It applies to buildings constructed after 18 July 1985. The deduction is calculated at either 2.5% or 4% per annum on the original construction cost, depending on when construction commenced.
How Are the Deductions Calculated?
MTD uses both the Prime Cost method (straight-line, equal annual deductions) and the Diminishing Value method (higher deductions in early years, tapering over time) as appropriate for each asset. The method applied is determined by ATO guidelines and what produces the best outcome for the property owner.
First Year Pro-Rata Deductions
In the first year of ownership, deductions are pro-rated from the date the property was first available for rent. This is an important distinction – MTD calculates this precisely from the correct commencement date, ensuring you don't miss out on deductions or over-claim.
The 40-Year Summary
The schedule concludes with a year-by-year summary covering all 40 years of claimable deductions. This allows your accountant to quickly identify the relevant year's total deduction and apply it to your tax return without any additional calculation.
Important: You do not need a new schedule each year. Simply provide the same schedule to your accountant each financial year and they will apply the correct year's deductions. Only obtain an updated schedule if you have made significant changes to the property such as renovations, extensions, or demolition of depreciable items.
When Should You Obtain a Schedule?
The best time to obtain a Tax Depreciation Schedule is as soon as possible after settlement. This ensures that no deductions are missed from the commencement of the rental period. However, schedules can be prepared retrospectively – it is never too late to commission a schedule, and an amended tax return can be submitted for prior years.
Contact Us
If you would like to know more about how a Tax Depreciation Schedule is structured, or to request an obligation-free quote for your investment property, please contact Melbourne Tax Depreciation:
- Phone: (03) 9873 7144
- Mobile: 0412 356 313
- Email: erik@melbournetaxdepreciation.com.au