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Two clients can buy almost identical properties for almost identical prices and end up with very different depreciation positions, and which property they choose to invest in explains that far more than what they paid for it.
To see why, it helps to know that a depreciation schedule is really two claims sitting inside one report, and they don’t behave the same way.
The first is the building itself, the concrete, the roof, the walls, which the Australian Taxation Office calls a capital works deduction. Once a building qualifies, this claim depreciates at a fixed rate of 2.5 per cent over 40 years, and it doesn’t care how many owners the property’s had.
The second is what sits inside that building – the Division 40 plant & equipment assets – these include the carpets, blinds, ovens, air conditioning, hot water systems, etc, each claimed at different effective lives. Who owns the property when these items were installed matters.
Capital works rates, at a glance:
| Property type | Construction must have been completed after: | Rate |
| Residential rental | 15 September 1987 | 2.5% over 40 years |
| Commercial (general) | 20 July 1982 | 2.5% over 40 years |
| Hotels, motels, & guesthouses | 27 February 1992 | 4% over 25 years |
Plant and equipment doesn’t run off a table like that. Every item has its own effective life: an oven, a carpet, an air conditioner all wear out at different speeds, so that claim is calculated asset by asset rather than at one fixed rate.
That distinction plays out in two separate situations, worth looking at each on its own.
The first is when a client is choosing between properties.
Since 9 May 2017, a buyer of a second-hand residential property generally can’t claim depreciation on the plant and equipment already inside it because those assets were already used before the client owned the property.
It isn’t about who owned the property first – it’s about whether the asset itself is new to that use. A new build carries no such restriction, so both claims are available in full from day one. That’s already a real gap between the two properties: full depreciation on one, a restricted claim on the other.
A second gap is about to open up alongside it, and it points the same way. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received royal assent in June. Once its negative gearing provisions take effect, losses on established residential property bought after the relevant cut-off get quarantined, meaning they can only offset other residential property income rather than a client’s full taxable income.
New builds, and anything already under contract before the cut-off, keep negative gearing exactly as it works now. So a client comparing an established property against a new build isn’t weighing up one factor in the new build’s favour – they’re weighing up two: the depreciation claim and the negative gearing treatment, and both currently sit on the same side of the ledger.
I’m not going to tell your client what that means for their own return – that’s their accountant’s call, but it’s worth putting on the table before they sign because it changes what the two properties are actually worth to them.
The second situation is different. It isn’t about a purchase decision at all – it’s about a property your client already owns, and it’s the one that catches people out more often. Losing the plant and equipment claim on a second-hand property doesn’t touch the building claim.
If the property was built after 15 September 1987, there’s a good chance a capital works claim is still running on it, sometimes for another 10 or 20 years, regardless of who owns the carpets and the air conditioning inside it. I’ve seen files where an investor decided depreciation “wasn’t worth it” on a property from the 1990s and quietly missed a genuine deduction, every year, for years, because nobody checked. Old does not mean nothing left – it just means one of the two claims is smaller than it would be on a new build.
That’s the one thing worth doing across your book this week, separate from any purchase conversation. Pick a handful of clients who’ve settled on an investment property and ask one question: has anyone actually done a depreciation schedule on it? If the answer’s no, or nobody’s sure, that’s worth a conversation. If the answer’s yes, it’s worth checking whether it actually covers both claims, not just the building.
None of this replaces the client’s accountant. It shouldn’t try to. But a broker who understands the difference between these two claims, and raises it at the right moment, whether that’s a new purchase or an old file nobody’s looked at, is adding something the client will actually use.
This article is general in nature and should not be treated as tax, legal, or financial advice. Investors and their brokers should obtain advice from their accountant or tax adviser before making decisions about property purchases or depreciation claims.
Daniel Farrugia is the co-director and co-founder of TDA Tax Depreciation.
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