Tax Depreciation: What Changed in 2017 and What You Can Still Claim

Tax Depreciation: What Changed in 2017 and What You Can Still Claim

Tax depreciation is a powerful tool for property investors, allowing you to claim deductions for the wear and tear of buildings and assets over time. But in May 2017, the rules changed—especially for second-hand residential properties.

Let’s break down what changed, what remains claimable, and how to maximise your deductions whether your property is old, new, or recently renovated.

What Changed in 2017?

On 9 May 2017, the Federal Government announced changes to the Income Tax Assessment Act 1997, which were legislated in November 2017. These changes significantly impacted how depreciation could be claimed on plant and equipment in second-hand residential properties:

Key Changes:

• If you purchased a second-hand residential investment property after 7:30pm on 9 May 2017, you can no longer claim depreciation on previously used plant and equipment (e.g. ovens, carpets, blinds).
• You can still claim:
• Capital works deductions (Division 43) on the building structure and permanently fixed items.
• New plant and equipment (Division 40) that you install after the property becomes income-producing.
• Depreciation on disallowed plant & equipment is now added to your cost base for Capital Gains Tax (CGT) purposes.

What About Older Buildings and Assets?

Even if your property is older, you may still be eligible for substantial depreciation deductions:

Capital Works (Division 43)

• Applies to structural elements like walls, roofs, tiling, and built-in cabinetry.
• Claimable at 2.5% per year for 40 years.
• Available for:
• Buildings constructed after 15 September 1987.
• Renovations (even by previous owners) completed after that date.

Plant & Equipment (Division 40)

• Includes removable items like air conditioners, ovens, carpets, and blinds.
• For older properties, you can only claim depreciation on newly installed items.
• Each item has its own effective life and depreciation rate.

Renovations: A Hidden Goldmine

Renovations—whether done by you or a previous owner—can unlock thousands in deductions:

• Division 43: Structural renovations (e.g. new kitchen, bathroom, decking) are claimable at 2.5% p.a. over 40 years.
• Division 40: New appliances and fittings (e.g. split systems, dishwashers) are depreciated faster.
• Keep detailed records of renovation costs, including design fees and permits.

New Properties: Maximum Depreciation

If you buy a brand-new investment property, you can claim full depreciation on both:

• Capital works: 2.5% p.a. for 40 years.
• Plant & equipment: Full depreciation based on effective life.

This makes new properties highly attractive for investors seeking to maximise tax deductions.

Comparison Table: Depreciation by Property Type

Pro Tip:

Always get a tax depreciation schedule from a qualified Quantity Surveyor. This ensures:

• All eligible deductions are captured.
• Scrapped assets are written off.
• You’re fully compliant with ATO rules.