Depreciation helps investors claim deductions while they own an income-producing property. But depreciation records also matter when selling — and this connection becomes more significant under the proposed CGT reforms.
The key link is capital works. Under Division 43 of ITAA 1997, capital works deductions claimed during ownership may reduce the property cost base for CGT purposes. This means your accountant needs to know what was claimed, or what may have been available to claim, across the entire ownership period.
A depreciation schedule prepared by a Chartered Quantity Surveyor documents Division 40 plant and equipment items, Division 43 capital works, year-by-year deductions, capital works amounts, construction cost estimates, renovation-related claims, and asset details including assumptions and limitations.
Under a cost base indexation model, clean records become even more critical. The cost base calculation must be accurate and defensible. If capital works were claimed incorrectly, over-claimed, or never documented, the accountant cannot rely on the record.
In our experience preparing depreciation schedules across thousands of Australian investment properties, the capital works component is consistently the most under-utilised deduction during ownership and the most reconstructed item at sale. Investors who discard old depreciation schedules, or never had one prepared, consistently face avoidable complexity when their accountant tries to calculate CGT.
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