Depreciation on an older property: built before 1987

For a rental home, Division 43 of the Income Tax Assessment Act 1997 deducts what it cost to construct the building, and each later extension, alteration or improvement to it, at a rate set by the day its construction began: not the year the property was finished, and not the year you bought it. Residential construction begun before 18 July 1985 is not deductible. Construction begun between 18 July 1985 and 15 September 1987 is deducted at 4% a year over 25 years, and construction begun after 15 September 1987 at 2.5% a year over 40 years. Each runs from the work's completion, on what the work cost, whoever owns it now.

For a property built in or before 1987 that leaves three cases. A house or block of units begun before 18 July 1985, as most of those built in the 1970s and early 1980s were, has no deduction for its original structure, whatever it cost. One begun between 18 July 1985 and 15 September 1987 was deducted at 4%, and if it was finished by 30 June 1988 its 25 years ended by the 2012–13 income year. One begun after 15 September 1987 and finished by 30 June 1988 has 2 years left from 2026–27. A house finished in 1985 or the few years after it may have been begun on either side of one of these days, so the day building started matters more than the year it was done.

The original structure is only part of an older property. An extension, alteration or improvement is capital works in its own right, on the rule for the day it was begun: a new kitchen or bathroom, an extension, a second storey or a granny flat begun after 15 September 1987 is deducted at 2.5% of its cost a year for 40 years from its completion, even on a house begun long before 1985. Work begun inside the 4% window has run out by now, and work begun before it was never deductible. Structural improvements outside the building, such as driveways, fences and retaining walls, have a later date of their own: structural improvements begun before 27 February 1992 are not deductible.

It does not matter who did the work. Renovations by an earlier owner pass to you with what is left of their years, worked out on what the work cost to carry out, not on what you paid for the property. Where nobody kept the invoices, a quantity surveyor or another appropriately qualified person can estimate the cost, and the estimate should say how it was made. The date matters as much as the cost: a council approval, a previous owner's schedule, an old sale listing or the age of the fittings can place the work on one side of a cut-off or the other.

Take a house begun in the 1970s, bought by an individual after 9 May 2017 and let. Its original structure gives nothing. An earlier owner added a 40 m² extension in 1990, which at our cost database's national rate for a standard house built that year, less the plant in it, cost about $18,888 then, and renovated the bathroom in 1995, which by our cost database's typical allowance cost about $8,077. Both were begun after 15 September 1987, so each deducts 2.5% of its cost a year: about $472 for the extension and $202 for the bathroom. Taking each as finished on 30 June of its year, as our year pages do, from the 2026–27 income year the extension has 4 years left, its last in 2029–30, and the bathroom 9 years, its last in 2034–35.

Together that is about $674 a year of capital works until the extension runs out. The oven, carpet, blinds and hot water system that came with the house are previously used plant, so for this owner their decline in value is generally not deductible, though a schedule still values them. What the owner buys new is deductible. A gas hot water system installed new while the house is let cost about $2,165 at 2025 prices in our cost database; with an effective life of 12 years it deducts $361 in its first full year under diminishing value, or $180 under prime cost.

Section 40-27 of the Income Tax Assessment Act 1997 shuts out the decline in value of plant used in a residential rental property if it was acquired at or after 7.30 pm on 9 May 2017 and someone else had used it before, as with the plant that comes with a second-hand property, or it was used while the property was the owner's home. It reaches individuals, most trusts and self-managed super funds. It does not reach a company, a superannuation fund other than a self-managed one, a managed investment trust, a public unit trust, or a unit trust or partnership whose members are all such entities, nor plant used in carrying on a business. An owner who held the property before that day, and had it let or available for rent at some time in the income year that included that day (the year to 30 June 2017), can generally still deduct the plant held then.

Plant bought new is outside the rule. An oven, split system, hot water system, carpet or blinds bought new and installed while the property is let, and never used in a home of your own, is deductible from the day it is installed ready for use, over its effective life under diminishing value or prime cost, or sooner where its cost is low enough for the immediate write-off or the low-value pool. For an individual who bought an older property after 9 May 2017, the plant its schedule can claim is generally what they have bought new.

The rules are the same for a house, townhouse, unit or apartment let as a home, and in every state; what differs is what there is to claim. A unit in a block from the 1970s has no deduction for the block's original structure, but its share of later work on the common property begun after 15 September 1987 generally counts, as the questions on a unit in New South Wales set out. The dwelling pages list what a schedule counts in each kind of property and what one cost to build in the years since 1990, such as a house in South Australia or a house in Victoria.

This is general information about the law, not advice on a particular property. What an older property gives turns on when each part of it was begun, what each cost, and who owns it and how, which is what a schedule works out from the property's documents.