Depreciation schedules and deductions
Depreciation (and other capital allowance deductions) is one of the most commonly missed — and most commonly misclaimed — areas of tax. A good schedule and clean records can improve accuracy, reduce audit risk, and stop you leaving deductions on the table.
What is a depreciation schedule?
It usually covers
- Depreciating assets (often called “decline in value”) — things like equipment, machinery and (in some cases) fixtures.
- Capital works deductions for building and structural improvements (often claimed over many years).
- Opening values, effective lives, and year-by-year deduction amounts.
The ATO’s depreciation rules focus on an asset’s effective life and how it declines in value over time.
Why it matters
- Accuracy: you claim the right thing in the right year.
- Evidence: you can support your claim if the ATO asks.
- Consistency: easier bookkeeping and fewer surprises at year-end.
Where depreciation deductions commonly apply
Investment properties
- Building / structural works (capital works).
- New eligible assets installed (and in some cases, existing assets — but rules are strict).
- Renovations and improvements generally get claimed over time, not all at once.
Small businesses
- Tools, equipment, vehicles, computers and fit-out items used to earn business income.
- Depending on eligibility and the rules in place, simplified depreciation may apply (including instant write-off and pooling concepts).
- Private use needs to be excluded (only the business-use portion is deductible).
Common pitfalls (and how to avoid them)
Claiming what can’t be claimed
For residential rentals, second-hand depreciating assets are generally not deductible unless specific timing conditions are met.
Mixing up repairs vs improvements
Repairs may be deductible now, while improvements are often capital and claimed over time. This is a common ATO focus area.
Poor record keeping
No invoices, no dates, no proof of “first use/installed ready for use” — which makes claims hard to support.
Quick property investor note: second-hand assets
Best practice checklists
For property investors
For small businesses
Case studies (good and bad)
A business buys a new piece of equipment, keeps the invoice, records the in-service date, and updates their asset register. They consistently apply the depreciation method they’re eligible for and exclude private use.
At tax time, the deduction is calculated correctly and supported by records, and there’s no scramble to “rebuild history”.
Outcome: correct deduction, smoother year-end, lower risk if the ATO asks questions.
A property investor buys an established rental and replaces multiple items, then claims deductions without separating repairs vs improvements, and assumes second-hand items inside the purchase are depreciable.
The ATO commonly reviews this area (repairs vs capital and depreciation eligibility). Misclassification can mean amendments, penalties, and interest.
Outcome: higher audit risk and often higher tax once the claim is corrected.
When you should get help
Property
- You purchased an established property and want to know what you can (and can’t) depreciate.
- You renovated, replaced kitchens/bathrooms, or did structural work (capital works usually applies).
- You’re unsure whether an expense is a repair or an improvement.
Business
- You bought multiple assets and want to optimise the timing and compliance of deductions.
- You’re unsure whether simplified depreciation applies and what you must do to use it.
- You disposed of assets (sold, scrapped, traded-in) and need the correct balancing adjustment.
Official Australian resources
- ATO — Guide to depreciating assets (latest guide)
- ATO — Simpler depreciation rules for small business
- ATO — Instant asset write-off (current limits and rules)
- ATO — Second-hand depreciating assets (rental properties)
- ATO — Rental property: repairs or capital expenses?
- ATO — Effective life of an asset
General information only. This page is not legal or financial advice and does not consider your specific circumstances.