Depreciating assets
Depreciating assets are items that can be described as plant, that don't form part of rental property premises. Premises refers to the actual structure of the rental property's building.
Under the uniform capital allowance rules, you can claim a deduction for the decline in value of depreciating assets used for income-producing purposes, for example a dishwasher in rental property which is rented or genuinely available for rent.
Some assets don't decline in value, such as land, trading stock and some intangible assets (for example, goodwill).
We recommend you keep a spreadsheet (as a minimum) for your depreciating assets as part of your record keeping. A quantity surveyor can prepare a report at the time a rental property is purchased.
Depreciating assets are usually:
- separately identifiable
- unlikely to be permanent
- replaced within a relatively short period
- not part of the structure of the building.
None of these factors alone can determine if an item is part of the premises. They must all be considered together.
For a list of common rental property items and their treatment as depreciating assets or capital works, see Residential rental property items.
You can claim a deduction for the item's decline in value. You can choose to use either:
- the effective life the Commissioner determines for these assets
- your own reasonable estimate of the effective life.
You must keep records to show how you work out the decline in value.
Decline in value of depreciating assets
Depreciating assets have an effective useful life and are reasonably expected to decline in value over time.
For depreciating assets costing more than $300, you can claim deductions for the decline in value over its effective useful life. Examples of such assets in your rental property or holiday home include:
- floating timber flooring
- carpets
- curtains
- appliances like a washing machine or fridge
- furniture.
When you purchase a rental property, either new or second-hand, you have bought a building plus separate depreciating assets, such as air conditioners, stoves and other items.
There are limitations that apply to decline in value of second-hand depreciating assets.
The decline in value of a depreciating asset starts when you first use it or install it ready for use – it doesn't matter whether it's for a private purpose or to earn assessable income. For example, if you purchased and installed a new asset on 1 January and used it for private purposes for the first 2 weeks, you calculate the decline in value from that date. However your deduction must be reduced for any private use of the asset.
Special rules apply to some assets that may allow you to claim deductions for their decline in value (depreciation) more quickly.
Watch: This video explains depreciating assets and when you can claim them as a deduction for a rental property.
Media: Claiming depreciating assets
Claiming depreciating assets (ato.gov.au)External Link (Duration: 02:21)
Depreciating assets costing $300 or less
Assets costing $300 or less can be claimed as an immediate deduction (a full deduction) in the income year you used the asset for a taxable purpose.
You can't claim an immediate deduction if the asset is part of a set of assets that together cost more than $300. For example, if you buy 4 dining chairs each costing $250 for your rental property you can't treat them as separate assets.
New assets
You can claim the decline in value of new depreciating assets.
This includes depreciating assets purchased with a newly built or substantially renovated property, if no one was previously entitled to a deduction for the decline in value, and either:
- no one resided at the property before you acquired it
- the asset was installed for use, or used at the property, and you acquired the property within 6 months of it being newly built or substantially renovated.
Example: claiming the decline in value of depreciating assets
Kerrie purchased a unit off-the-plan from a developer as an investment (it was new and no one lived in it prior to that time).
The property included depreciating assets such as curtains and furniture installed before settlement and the transfer of title to Kerrie.
Kerrie engages a qualified quantity surveyor to get a full list of all depreciating assets that she can claim each year until the end of their effective lives.
Kerrie is entitled to claim deductions for decline in value of the depreciating assets because no one has lived in it before she purchased it.
End of example
Example: claiming the decline in value of depreciating assets
Kate purchased a residential investment apartment from a developer 4 months after completion. It was already tenanted when Kate purchased it. The developer wasn’t entitled to claim a deduction for the decline in value of the depreciating assets at the property because they were his trading stock.
The property included depreciating assets such as curtains and furniture installed before settlement and the transfer of title to Kate.
Kate engages a qualified quantity surveyor to get a full list of all depreciating assets that she can claim each year until the end of their effective lives.
Kate is entitled to claim a deduction for decline in value of the depreciating assets (although they have been used by the tenants) because both of the following apply:
- no one could claim any deductions for decline in value of the depreciating assets
- the property was supplied to Kate within 6 months of being built.
If Kate had entered into the contract to buy this apartment after 6 months of it being newly built, she wouldn’t have been entitled to claim a deduction for the decline in value of any of the depreciating assets that were already in it at that time.
End of exampleCalculating deductions for decline in value
To work out your deduction for decline in value, use either the:
- diminishing value method – the decline in value each year is a constant portion of the remaining value – claiming higher deductions in the early years of its effective life
- prime cost method – the decline in value each year is a uniform amount of the original value over its effective life – claiming a lower but more constant portion each year.
Depreciating assets valued at less than $1,000 can be grouped in a low-value asset pool and depreciated together.
Example: calculating deductions for decline in value
Laura purchased a new outdoor table for her rental property on 1 July 2024, for $1,500. It has an effective life of 5 years. She can choose to use either the diminishing value or prime cost method.
Diminishing value method
The formula for the annual decline in value using the diminishing value method is:
Asset's cost × (days held ÷ 365) × (200% ÷ asset's effective life)
The decline in value for 2024–25 is $600, worked out as follows:
1,500 × (365 ÷ 365) × (200% ÷ 5)
Laura is entitled to a deduction for decline in value of $600.
The adjustable value of the asset on 30 June 2025 is $900. This is the cost of the asset ($1,500) less its decline in value up to 30 June 2025 ($600).
Prime cost method
The formula for the annual decline in value using the prime cost method is:
Asset's cost × (days held ÷ 365) × (100% ÷ asset's effective life)
The decline in value for 2024–25 is $300, worked out as follows:
$1,500 × (365 ÷ 365) × (100% ÷ 5)
Laura is entitled to a deduction for decline in value of $300.
The adjustable value of the asset on 30 June 2025 is $1,200. This is the cost of the asset ($1,500) less its decline in value up to 30 June 2025 ($300).
End of exampleFor help to help work out the deduction you can claim from a depreciating asset, see Depreciation and capital allowances tool.