Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 259

EOFY and new depreciation rules for property

In one of the most dramatic changes to property depreciation legislation in more than 15 years, Parliament passed the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 in 2017.

The legislation means owners of ‘second-hand’ residential properties (where contracts were exchanged after 7:30pm AEST on 9 May 2017) will be ineligible to claim depreciation on plant and equipment assets, such as air conditioning units, solar panels or carpet. It is an integrity measure which addresses concerns that some plant and equipment assets were being depreciated by successive property investors in excess of their actual value.

What’s unaffected by the new legislation?

The good news is that there are still thousands of dollars to be claimed by Australian property investors, as there has been no change to capital works deductions, a claim available for the structure of a building and fixed assets such as doors, basins, windows, or retaining walls.

The capital works deduction is available on residential investment properties that commenced construction after 15 September 1987. These deductions typically make up between 85-90% of an investor’s total claimable amount. This includes any capital works carried out by the current or a previous owner.

Existing depreciation legislation will be grandfathered. Investors can claim depreciation for plant and equipment assets that form part of a residential investment property purchased prior to 7:30pm on the 9 May 2017 (including contracts already entered into at that time). Investors who fall into this category can claim depreciation deductions until they either no longer own the asset, or until the asset reaches the end of its effective life.

Investors who purchase new residential properties and commercial property owners or tenants who use their property for the purposes of carrying on a business are also unaffected.

Superannuation funds that hold residential property (other than SMSFs) will not be affected, nor will public trusts and managed investment trusts or corporate tax entities.

Owners of second-hand properties who exchanged after 7:30pm on 9 May 2017 will still be able to claim depreciation for plant and equipment assets they purchase and directly incur an expense on.

Impact on new owners of second-hand residential property

A property owner will not be able to claim depreciation on pre-existing plant and equipment assets within properties which have been lived in as a primary place of residence where the owner decides to rent the property out after 1 July 2017. Plant and equipment assets within this scenario are considered previously used. Any additional work to such a property completed by the current owner is classified as capital improvements and claimed as normal. This includes both capital works and plant and equipment.

If a property is considered to have been substantially renovated by the previous owner for selling purposes, then an investor can claim depreciation on the new plant and equipment assets along with any new or old qualifying capital works deductions available. If an entity has previously been entitled to any depreciation deductions for these assets, or if someone lived in the property before it was held by the current owner, then they will not be able to claim any ongoing plant and equipment depreciation on the assets. These assets will be included in a capital loss depreciation schedule for the purposes of claiming a capital loss, allowing the owner to adjust their CGT liabilities where applicable.

It’s important to work with a specialist Quantity Surveyor to ensure that all deductions are identified and claimed correctly under the new legislation. For investors who are planning on selling a property affected by the new rules, a depreciation schedule can be provided to assist them and their accountant to perform a calculation adjustment for CGT liabilities.

More about the new depreciation legislation and how this applies to a range of property investment scenarios, is available in this document: Essential facts: 2017 Budget changes and property depreciation.

 

Bradley Beer is the Chief Executive Officer of BMT Tax Depreciation. This article is general information and does not consider the circumstances of any investor.

  •   21 June 2018
  • 2
  •      
  •   

RELATED ARTICLES

Maximising your property tax depreciation and claims

How property spruikers target SMSFs

Tax deductions are still available for property investors

banner

Most viewed in recent weeks

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

The hidden property empire of Australia’s politicians

With rising home prices and falling affordability, political leaders preach reform. But asset disclosures show many are heavily invested in property - raising doubts about whose interests housing policy really protects.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Latest Updates

A speech from the Prime Minister on fixing housing

“Fellow Australians, I want to address our most pressing national issue: housing. For too long, governments have tiptoed around problems from escalating prices, but for the sake of our younger generations, that stops today.”        

Taxation

Family trusts: Are they still worth it?

Family trusts remain a core structure for wealth management, but rising ATO scrutiny and complex compliance raise questions about their ongoing value. Are the benefits still worth the administrative burden?

Exchange traded products

Multiple ways to win

Both active and passive investing can work, but active investment doesn’t in the way it is practised by many fund managers and passive investing doesn’t work in the way most end investors practise it. Here’s a better way.

Economy

The Future Fund may become a 'bad bank' for problem home loans

The Future Fund says it will not be paying defined benefit pensions until at least 2033 - raising as many questions as answers. This points to an increasingly uncertain future for Australia's sovereign wealth fund.

Investment strategies

Managed accounts and the future of portfolio construction

With $233 billion under management, managed accounts are evolving into diversified, transparent, and liquid investment frameworks. The rise of ETFs and private markets marks a shift in portfolio design and discipline. 

Property

Commercial property prospects are looking up

Commercial property is seeing the same supply issues as the residential market. Given the chronic undersupply and a recent pickup in demand, it bodes well for an upturn in commercial real estate prices.

Infrastructure

Private toll roads need a shake-up

Privatised toll roads in Australia help governments avoid upfront costs but often push financial risks onto taxpayers while creating monopolies and unfair toll burdens for commuters and businesses.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.