New vs Old Property Depreciation in Australia
When it comes to property investment, there’s always a big question: should you buy new or old?
It’s not just about location, price, or aesthetics. For many investors, the real value lies in depreciation—the tax deductions you can claim to boost your cash flow. But here’s the catch: Australian laws have changed, and they’ve made this decision more important than ever.
Let’s break it down so you can make the best choice for your property investment journey.
Overview: New vs Old Property Depreciation in Australia
- The 2017 law changes have shifted the Australian property depreciation landscape.
- New properties now offer better depreciation and lower maintenance but a higher purchase price.
- Old properties offer less depreciation but have more character with potential for renovations.
What is Property Depreciation?
First, let’s cover the basics. Property depreciation is the wear and tear on a property over time. Think of it as a way to claim back part of your property’s value as a tax deduction.
This mainly includes (a) plant and equipment, which includes items like dishwashers, ovens, and carpets, and (b) building structure, which includes things like brickwork, concrete, and walls.
The more you can claim, the less tax you pay. It’s that simple.
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The Game-Changing 2017 Law Change
In 2017, the Australian government made a major update to depreciation rules. These changes shook up the way investors approach buying property.
Here’s what happened:
- You can no longer claim depreciation on second-hand plant and equipment unless you’re the first owner of the property.
- However, you can still claim depreciation on the building’s structure, regardless of how old the property is.
This means if you buy a second-hand property—even if it’s just a day old—you miss out on claiming depreciation for many items inside the home. But, if you’re the first owner of a brand-new property, you can claim everything.
Why Did the Government Change the Law?
The reason was simple: to encourage new property development. By giving better tax benefits to new properties, the government hoped to stimulate the construction industry and address Australia’s ongoing housing crisis.
While this was great news for developers, it left investors with some tough choices.
How Does It Affect You as an Investor?
Let’s look at some numbers to see the impact. Please note that these are general calculations and actual numbers can vary depending on specific circumstances.
Brand-New Property Example
Say you buy a brand-new property for $1 million. Your first-year depreciation claim could be:
- $24,000 in the first year.
- Around $140,000 over 10 years.
That’s a significant tax saving, right? It could make a huge difference to your cash flow.
Second-Hand Property Example
Now, let’s imagine the same property is sold to you just a month later. Even though it’s practically brand new, you’re no longer the first owner. Your depreciation claim drops to:
- Around $11,000 in the first year.
- About $100,000 over 10 years.
This means you’re missing out on tens of thousands of dollars in deductions.
New Property: Pros and Cons
Buying new has clear depreciation benefits, but it’s not the only factor to consider. Let’s look at the bigger picture.
Pros of Buying New
- Maximum Depreciation: As the first owner, you can claim the highest possible deductions.
- Modern Features: New properties often come with energy-efficient designs and the latest technology.
- Lower Maintenance Costs: Everything is brand new, so repairs are minimal.
Cons of Buying New
- Higher Price: New properties often come at a premium compared to older homes in the same area.
- Potential Oversupply: Some areas with new developments may face high competition, affecting rental yields.
- Less Character: New homes may lack the charm and individuality of older properties.
Old Property: Pros and Cons
Older properties still hold value, especially in established suburbs. But how do they stack up?
Pros of Buying Old
- Prime Locations: Older properties are often in well-established, sought-after areas.
- Lower Purchase Price: You may pay less upfront compared to a new build.
- Potential for Renovation: Adding value through renovations can be a smart move.
Cons of Buying Old
- Lower Depreciation: You’ll miss out on claiming plant and equipment unless you replace them.
- Higher Maintenance Costs: Repairs and upgrades are more likely.
- Outdated Features: Older homes may lack modern conveniences.
What Can You Still Claim on Old Properties?
While you lose out on plant and equipment depreciation, you can still claim on the building itself. This includes structural elements like bricks, walls, and concrete, and any renovations or upgrades done by previous owners (if they fall within the eligible timeframe).
For this, you’ll need a professional depreciation schedule to maximise your deductions.
Should You Always Buy New?
Not necessarily. Buying new isn’t automatically the best choice. It depends on your goals as an investor.
Buy New If
- You want maximum tax deductions and depreciation benefits.
- You prefer lower maintenance and modern features.
- You’re investing in an area with strong demand for new properties.
Buy Old If
- You’re looking for properties in prime, established locations.
- You’re open to renovating to increase the property’s value.
- You’re focusing on capital growth over immediate cash flow.
Practical Tips for Property Investors
- Get a Depreciation Schedule: Whether you buy new or old, this is essential to claim your deductions accurately.
- Work with a Quantity Surveyor: They specialise in preparing depreciation schedules and know how to maximise your claims.
- Understand Your Strategy: Are you aiming for cash flow or capital growth? Your strategy will influence whether new or old is better for you.
- Consider Tax Implications: Depreciation is just one part of your overall tax strategy. Speak to an accountant for tailored advice.
- Using Tools to Make Smart Decisions: Before making a decision, use online tools that help estimate how much depreciation you can claim. Plug in the numbers for both new and old properties, and see how they compare.
Maximise Your Tax Savings
Property investing is about more than just buying a house. It’s about understanding the financial benefits, like depreciation, that can make or break your investment strategy.
If you’re leaning towards new properties, make sure you’re the first owner to claim the full benefits. If you prefer older homes, consider the trade-offs and focus on long-term growth.
Whatever you choose, do your research, crunch the numbers, and invest with confidence.
Ready to take the next step?
At Odin Mortgage & Tax, we specialise in helping property investors unlock their full tax potential. Whether you’re buying new or old, our team ensures you claim every depreciation benefit available.
Receive tailored advice to maximise your deductions and expert guidance to navigate the 2017 law changes with confidence, all saving you time and money!
Contact us today to take control of your tax strategy and boost your property investment returns!
Get a free Australian mortgage assessment today.
FAQs about New vs Old Property Depreciation in Australia
What is property depreciation?
Property depreciation is a tax deduction for the wear and tear of a property’s structure and assets over time.
Can I claim depreciation on old properties?
Yes, but only on the building structure, not second-hand plant and equipment items like appliances or fixtures.
Why do new properties offer better depreciation benefits?
New properties allow first owners to claim full depreciation on both structure and new plant and equipment items.
Is buying new always better for depreciation?
For tax benefits, yes. But factors like location, cost, and personal goals should also influence your decision.
What changed in the 2017 depreciation law update?
The update restricted investors from claiming depreciation on second-hand plant and equipment unless they are the first owner of the property.
Why was the depreciation law changed in 2017?
The government aimed to encourage new property development and address the housing crisis by giving better tax benefits to first-time owners of new properties.
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