Non-resident landlords who own Australian investment property are entitled to claim depreciation deductions against their Australian rental income, just as resident investors can. A depreciation schedule is a formal report prepared by a quantity surveyor that maps out the deductible decline in value of a property’s structure and its removable assets over time [1]. Claiming this deduction reduces assessable Australian rental income and, for properties running at a loss, deepens the negative gearing position carried on the Australian return. The mechanics are the same regardless of where you live. What changes for non-residents is the broader tax context: the rate of tax applied to net income, the rules around capital gains, and the risk of errors compounding across unfiled years.
TL;DR
- Non-resident landlords can claim property depreciation in Australia on the same two categories as residents: capital works (Division 43) and plant and equipment (Division 40) [1].
- A professionally prepared depreciation schedule is a tax-deductible cost that can cover up to 40 years for capital works deductions, though it may require updating if significant renovations are undertaken or new assets are installed [4].
- Depreciation deductions reduce net rental income taxed at non-resident marginal rates (no tax-free threshold applies in 2025‑26). This is general information only and does not constitute personal tax advice.
- Depreciation does not reduce your capital gains tax exposure when you sell; it may, however, affect your cost base calculations.
- Common errors include skipping a schedule entirely, claiming plant and equipment on second-hand residential properties purchased after 9 May 2017, and mixing up Division 40 and Division 43 eligibility rules.
What exactly is a depreciation schedule for an investment property?
A depreciation schedule is a structured report, typically prepared by a registered quantity surveyor, that identifies and values two distinct categories of deductible decline [3]:
- Division 43 (Capital Works): The building structure itself, including walls, floors, roofing, and fixed infrastructure. The ATO allows a deduction for the cost of construction spread over a prescribed effective life, generally at a rate of 2.5% per year (2025‑26) for residential buildings constructed after 15 September 1987 (per ATO published guidance on Div 43).
- Division 40 (Plant and Equipment): Removable or mechanical assets within the property, such as dishwashers, hot water systems, carpet, and blinds. Each asset has its own ATO-prescribed effective life and depreciation rate [1].
Once prepared, a quality depreciation schedule can cover up to 40 years for capital works deductions, making it a tax-deductible cost with a multi-decade payoff [4].
Can non-residents and foreign investors actually claim these deductions?
Yes, and this is a point that surprises many clients. Depreciation eligibility is determined by property use, not by where the owner lives [5]. If the property is held to generate Australian rental income, the depreciation deductions flow through to your Australian tax return in the same way they would for a Sydney-based landlord. Foreign nationals investing in Australian property are equally eligible [5].
What is different for non-residents is the rate at which the resulting net income (or loss) is taxed. In 2025‑26, non-residents do not access the tax-free threshold, meaning Australian rental income is taxed from the first dollar at applicable non-resident marginal rates. This makes depreciation claims proportionally more valuable because every dollar of deduction is working harder against a higher effective rate from the outset.
What are the restrictions on plant and equipment claims for residential property?
Building on the eligibility point above, a significant legislative change in 2017 introduced restrictions specifically for residential property investors. Under rules that took effect for assets acquired after 9 May 2017 [1]:
- Plant and equipment (Division 40) deductions on second-hand residential properties are generally no longer available to investors who purchase those properties.
- Deductions for plant and equipment are still available where the investor installs brand new assets in the property themselves, or where the property itself is brand new.
- Division 43 capital works deductions are unaffected by this change and remain claimable on eligible properties regardless of whether the building is new or existing.
This distinction catches many investors out. A depreciation schedule prepared by a quantity surveyor should correctly separate Division 40 and Division 43 entitlements so that claims are compliant from day one [3].
How does depreciation interact with capital gains tax when you sell?
Stepping back from the mechanics of annual deductions, a separate concern for non-residents is what happens when the property is eventually sold. This is where the interaction between depreciation and CGT requires careful attention.
| Item | Resident Investor | Non-Resident Investor |
|---|---|---|
| 50% CGT discount (12+ months ownership) | Available | Not available for assets acquired, or periods of non-residency, after 8 May 2012 |
| CGT Withholding on sale (FRCGW) | Not applicable | Under ATO rules for 2025‑26, 15% of the purchase price is withheld at settlement for properties over AUD $750,000 (refer to current ATO FRCGW guidance for applicable thresholds and rates) |
| Depreciation impact on cost base | Capital works deductions reduce cost base | Same rule applies; reduces cost base and increases capital gain |
The cost base reduction from Division 43 claims is a genuine consideration. Every dollar of capital works deduction claimed during ownership reduces the cost base of the property, which increases the taxable capital gain on sale. For non-residents who cannot access the 50% CGT discount, this effect is more pronounced.
Is a depreciation schedule worth commissioning for older properties?
A related but distinct question is whether depreciation schedules are worth the cost on older buildings. The answer depends on construction date and asset composition, but the general principle holds: even a 30-year-old residential building may still have capital works life remaining, and any refurbishments or new assets installed by the current or previous owner may have their own depreciation entitlements [2].
The schedule fee itself is a tax-deductible expense and can cover the life of the property for capital works deductions [4]. The practical threshold is whether projected annual deductions outweigh the one-off preparation cost over a reasonable horizon. A quantity surveyor can usually provide an upfront estimate of likely deductions before you commit.
Frequently Asked Questions
Do I need an Australian tax return to claim depreciation?
Yes. Depreciation deductions are claimed in your annual Australian income tax return. Non-residents earning rental income from Australian property are required to lodge an Australian tax return regardless of where they live.
Who prepares a depreciation schedule?
A registered quantity surveyor prepares the schedule after physically inspecting the property or reviewing detailed construction data. Tax agents use the schedule when preparing your return but do not prepare the schedule itself [3].
Can I backdate depreciation claims for prior years?
You can amend prior-year returns or lodge overdue returns to include depreciation claims that were missed, subject to the ATO’s amendment and lodgment timeframes. A tax agent can advise on whether an amendment or lodgment is the right pathway and can manage penalty exposure where returns are overdue.
Does depreciation apply to commercial property owned by non-residents?
Yes. Commercial properties are also eligible for depreciation, and the plant and equipment restrictions that apply to second-hand residential properties do not apply in the same way to commercial assets [5].
What if my property was built before 1987?
Division 43 capital works deductions are generally only available for residential buildings where construction commenced after 15 September 1987. Properties built before this date typically cannot claim capital works deductions, though plant and equipment assets installed more recently may still be eligible [1].
Does my depreciation schedule need to be updated?
The original schedule generally does not need to be redone unless you carry out significant renovations or add new plant and equipment. In those cases, a supplementary report is the efficient approach rather than a full new schedule [4].
How does depreciation affect my negative gearing position?
Depreciation is a non-cash deduction, meaning it reduces your assessable rental income without requiring an out-of-pocket payment in the year of claim. This often converts a positively geared property into a negatively geared one on paper, reducing the net Australian income subject to tax. For non-residents, any net rental loss is typically quarantined to offset future Australian rental income or Australian-sourced income, rather than offsetting foreign income.
About ODIN Tax
ODIN Tax is Australia’s specialist tax agent practice for non-residents and Australian expats, operating as part of the ODIN GROUP alongside ODIN Mortgage. Led by Tax Director Pau Lam, the practice has served over 10,000 Australian expats across more than 40 countries and holds a 4.9/5 Google rating from 330+ verified client reviews. As a Registered Australian Tax Agent headquartered in Hong Kong, ODIN Tax handles non-resident rental income compliance, depreciation claim review, CGT calculation, and overdue lodgment management for people managing Australian property from overseas. Unlike generalist accountants, ODIN Tax works only in the non-resident tax landscape, so nothing about your situation is unfamiliar territory.
Own Australian property from overseas?
ODIN Tax prepares Australian tax returns for non-residents and expats across 40+ countries, including full depreciation claim review and negative gearing compliance.
Get in touch with the team at www.odintax.com
References
- A Guide for Investment Property Tax Depreciation in Australia (propertyupdate.com.au)
- A beginners guide to property depreciation – PRD (prdwagga.com.au)
- Beginners Guide: Depreciation Schedule For Investment Property | InvestorKit (www.investorkit.com.au)
- Asset Reports | Information for Foreign Investors (www.assetreports.com.au)
- Tax Depreciation for Foreign Investors Buying Property in Australia (thrifty.tax)
