Tax Depreciation on a New Investment Build in NSW

Depreciation is one of the largest non-cash tax benefits available to property investors. If you are building new for investment in NSW, you should understand what you can claim.

The two depreciation categories

Division 43 – Capital works

The fixed elements of the building: walls, roof, floor, fixed cabinetry, tiles, plumbing, electrical wiring (the structure itself). Depreciated at 2.5 percent per year over 40 years.

On a $500,000 new build, that is $12,500 per year for 40 years (total $500,000 of deductions over the life of the property).

Division 40 – Plant and equipment

Removable items: blinds, carpet, appliances, hot water systems, air conditioning, smoke detectors. Each has its own effective life under ATO rules. Higher depreciation rate in early years.

On a typical new build, Division 40 items total $30,000 to $60,000 in initial value, generating $5,000 to $12,000 of deductions in year one.

The quantity surveyor report

A quantity surveyor inspects the property after handover and produces a depreciation schedule. This is what your accountant uses to calculate annual deductions. The QS report itself is tax deductible.

Cost: $400 to $800 for a residential property. ROI: massive. Most investors recover the cost in year one tax savings.

Why new builds are particularly attractive

Since the 2017 changes, second-hand plant and equipment cannot be depreciated by new owners. This made existing properties less attractive for tax purposes. New builds remain fully depreciable, giving investors a clear tax advantage when building rather than buying established.

What happens at sale

Capital gains tax cost base is reduced by the depreciation claimed (capital works recapture). For most investors, this is still a net benefit because the deductions are claimed at marginal tax rate (32 to 45 percent) and the eventual gain is taxed at the discount CGT rate (effectively 16.25 to 22.5 percent).