Tax and Depreciation Benefits for New Builds

New investment builds provide greater advantages over existing properties when it comes to tax and depreciation.

While depreciation can be claimed for almost all investment properties, those who have invested in a new build can claim more and for longer.

Tax Deductions for New Builds

Investors can claim two forms of tax deductions on a new investment build, namely: capital works deductions (under Division 43) and plant and equipment deductions (under Division 40). 

Deductions for capital works are claimed on the structure and permanent fixtures of the building. These are structural elements of the property such as the walls, doors and roof, along with fixtures such as kitchen cabinets, bathroom sink and toilet.

Capital works deductions are claimed at either 2.5% over 40 years or 4% over 25 years, depending on the construction date. 

Plant and equipment deductions are claimed on items in the property that are easily removable or mechanical in nature. These include air-conditioning units, hot water systems, carpet flooring, and window blinds. Depreciation claims for plant and equipment items are limited by the effective asset life determined by the ATO. For example, deductions for carpet flooring can be claimed for 10 years, while deductions for ventilation fans can be claimed for 20 years.  

By claiming capital works or plant and equipment deductions on a new build, owner investors can reduce their taxable income and enjoy savings. 

Depreciation Benefits for New Builds

Full capital works deductions 

Investors who buy a second-hand investment property are only entitled to claim capital works depreciation for the remaining number of years. If the previous owner of the investment property had already claimed capital works depreciation for 20 years, the new owner of the property will only be able to claim depreciation for the remaining 20 years.

Owners of a newly built property, however, will be able to claim capital works depreciation on the full 40 years, covering the entire cost of the building’s structure.

Eligibility for plant and equipment deductions

In November 2017, the Federal Government changed depreciation legislation, disallowing plant and equipment deductions for assets in second-hand properties. The change means that investors of second-hand properties can no longer claim plant and equipment deductions for items included in the purchase of the property.

Plant and equipment assets in newly built properties are unaffected by these changes - owners can still claim deductions on items such as air conditioning units, a hot water system, carpet flooring, and window blinds. 

Here's a breakdown of how tax deductions compare for a new build vs an existing property:

This estimate also reflects a similar trend found in real market data. In the 2022-23 financial year, BMT data revealed that owners of new properties claimed an average first full-year depreciation of $15,234. In contrast, owners of older investment properties claimed an average depreciation of $5,126 during the same period. 

Apart from depreciation on capital works or plant and equipment, investors of new builds can also claim tax deductions for the costs of leasing the property, which include property management, loan interest, building insurance, and maintenance costs.

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