Depreciation Rules for Residential Versus Commercial Investing

When you decide to buy a property, you need to assess a few essential factors. Investors need to evaluate factors like what type of investment will offer them higher deductions in depreciation form. Based on these evaluations, the property depreciation reports are prepared every financial year. Investors may have to decide between residential property and commercial property. It is worth noting that depreciation deductions apply to investment properties in the following two methods:

  1. Deductions will be claimed for the depreciation of building structure popularly known as capital works deductions.
  2. Deductions can also be claimed for plant & equipment assets available inside the property.

Here are some important factors that you must not ignore:

Vital dates

When it comes to a commercial investment property, the beginning date that ATO allows investors to claim available capital works deductions is July 20, 1982. The items may include bricks, buildings, and roofs, among others. Meanwhile, for residential properties, capital works are allowed to be claimed for properties wherein construction began post September 15, 1987. It depends on the age and kind of building. You can claim either 2.5% or 4% every year of the property’s historical construction cost for the capital works allowance. After assessing all the vital details, you can prepare your property tax depreciation report and seek deductions.


For commercial properties, ATO has allowed tenants to claim some depreciation for assets. Commercial tenants will be able to claim depreciation on any fit-out that they have added from the beginning date of their lease. It may include blinds, desks, shelving, carpets, and fire-fighting, among others. However, if a commercial tenant happens to eliminate objects at the end of tenancy and dump them, they can still claim remaining depreciation for assets eliminated and dumped. They can do so when they decide to vacate the property.  Meanwhile, when the assets’ owner seeks to on-sell the objects or retain them for future use, it will not be applicable. If objects happen to be on-sold, the tenant must discuss it with their accountant as it may have tax consequences. Commercial building owners are eligible to claim depreciation of assets installed and left by the earlier tenant the moment tenancy has ceased. You may contact an expert to prepare your property tax depreciation schedule. Quantity surveyors have the required expertise and knowledge of preparing property tax depreciation schedule.


Deductions for plant and equipment assets available in commercial and residential properties will rely on the distinct effective lives of every asset. The deductions have been clearly set by the Australian Taxation Office (ATO). For residential properties, it will be directly related to the purchase date of second-hand properties. But, ATO has estimated that few assets used in one commercial industry may depreciate at an increased rate than in residential property. For instance, carpets are expected to depreciate at an increased rate in restaurants and pubs than in residential buildings.


According to ATO, residential property owners won’t be able to claim depreciation for building they occupy solely. They will be able to claim depreciation on a building that generates income. They should evaluate the tax depreciation life and seek depreciation claim. Meanwhile, for commercial property, there have been methods through which owners can occupy investment property and claim depreciation. It happens when the property is bought by a trust or organization. The owner will then be able to occupy the property as a tenant and claim depreciation.