Understanding Tax Deductibility: Residential vs Commercial Investments

Gareth Turner, Director — Brisbane

As the financial year approaches its final quarter, now is an opportune time to review your investment properties.

One effective strategy to enhance your return is through a tax depreciation schedule, a cost-efficient approach for claiming depreciation on property investments.

Let’s decipher the tax benefits across residential and commercial property assets.

Residential Properties

Tax depreciation schedules tailored for residential properties primarily benefit investors. To qualify for these deductions, owners must generate rental income from the property. Claims can be made under Division 43 (capital works) encompassing items such as renovated kitchens or extensions completed by previous owners. This implies that older homes can still benefit from significant deductions from past structural upgrades. However, claims under Division 40 items (Plant and Equipment), such as carpets, blinds, air conditioners are restricted for established or second-hand properties. These items can only be claimed if installed after the settlement date or when the property is converted to an investment property.

Commercial Properties

The eligibility for commercial properties is more expansive. Owners either operating their business from the property or leasing the premises can claim these deductions. A notable feature of commercial property depreciation is the ability to claim fit-out costs, whether incurred by the owner, the tenant, or both through a landlord’s fit-out contribution. Division 43 will be the main contributor of claimable deductions, but unlike residential properties, Division 40 assets can be claimed regardless of the property being resold as second-hand. The list of claimable assets is also substantially larger for commercial properties.


Scrapping plays a vital role in property depreciation. It applies when removed assets and structural elements within a building retain an un-deducted value. At the time of removal, the asset owner can claim the remaining value as an immediate deduction in that financial year. These valuable deductions apply to both removable plant and equipment assets (under Division 40) and the fixed assets or structural capital works elements of a building (under Division 43). The application of scrapping is more common in commercial properties that may regularly undergo fit-out renewals or modifications, adding significant benefits to your deductions. Scrapping is still applicable to residential properties, however, it’s more prevalent in “new” buildings that may undergo some upgrades of plant and equipment that has not yet fully depreciated, such as ovens or air conditioning units.

In conclusion, understanding and utilising these tax benefits can significantly enhance the return on your property investments. It’s important to note that while there are substantial benefits for residential depreciation reports, commercial properties offer additional benefits that can be claimed.

If we can assist you in navigating your property decisions, please reach out to our team.

Nathan King
National Director – Advisory, State Director – WA Operations
— Perth Property Valuers
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