Buying a house and land package can give property investors a strong start. Because the home is brand new, you may be able to claim tax depreciation on the building structure and eligible new plant and equipment items once the property is complete and available for rent.
House and land package depreciation can help reduce your taxable income without affecting your day-to-day cash flow. That is because depreciation is a non-cash deduction. You do not need to spend the money again each financial year to claim it.
However, not every part of the purchase can be depreciated. Land does not depreciate for tax purposes according to the Australian Taxation Office guidelines. Your claim usually relates to the residential property building, fixed improvements and eligible plant and equipment assets inside the property.
A tax depreciation schedule helps show what you can claim, when you can claim it and how much your accountant can include in your tax return. For investors buying a brand new property or house purchased as part of a house and land package, organising this detailed breakdown report early can help you take full advantage of tax deductions and avoid missed depreciation benefits.
What Is House and Land Package Depreciation?
House and land package depreciation means claiming tax depreciation deductions for the decline in value of a new investment property over time. It applies to the parts of the property that can wear out, age or lose property value through normal use.
For tax purposes, property depreciation usually falls into two main groups. The first is capital works, which covers the actual structure of the building and fixed improvements. The second is plant and equipment depreciation, which covers eligible removable or mechanical equipment items.
A house and land package often includes both. The building may include walls, roofing, flooring, built-in cabinetry, plumbing and electrical work. Plant and equipment assets may include carpets, blinds, appliances, ceiling fans and air conditioning units.
You can usually start claiming depreciation once the property is complete and available for rent. The property does not always need a tenant in place, but it must be genuinely available to produce rental income and be an income-producing property.
The land component is different. Land does not lose value in the same way as the building or assets, so you cannot claim tax depreciation on it. This makes correct cost separation important when preparing a tax depreciation schedule.
Why House and Land Packages Can Offer Strong Depreciation Benefits
House and land packages can offer strong taxation benefits because the building and many of the assets are new. This matters because brand-new investment properties often give property investors access to deductions that may be limited or unavailable in many older or second-hand properties.
For example, a newly built rental property may allow you to claim capital works deductions on the construction cost of the building. It may also allow you to claim plant and equipment depreciation on eligible new assets, such as carpets, blinds, ovens, dishwashers, air conditioning units and hot water systems.
This can make new property depreciation more valuable in the early years of ownership. Many plant and equipment assets have shorter effective lives than the actual structure, so they may produce faster deductions than capital works.
These tax deductions can help improve cash flow by reducing taxable income. They also give your accountant clearer figures to use at tax time.
For investors comparing a house and land package with an established property or an old house, depreciation can play an important role in the investment decision. It should not be the only reason you buy, but it can affect the after-tax investment returns of the property.
Capital Works Deductions for the Building Structure
Capital works deductions apply to the structure of the property and fixed improvements that form part of the building. For a house and land package, this often makes up one of the largest parts of the depreciation claim because the dwelling is newly built.
For many residential property investments, eligible capital works are claimed at a depreciation rate of 2.5% per year over 40 years. This may include the cost of the house structure, roof, walls, floors, doors, windows, built-in wardrobes, kitchen cupboards, bathroom tiling, plumbing, electrical work, concrete driveways and other fixed improvements.
These deductions fall under Division 43 of the current legislation. They differ from plant and equipment deductions because they usually relate to parts of the property that are fixed or structural.
The original construction cost plays an important role in calculating capital works deductions. If you have a building contract, variation records and final construction costs, these documents can help support your claim. If some costs are missing, a qualified quantity surveyor can estimate eligible construction costs for depreciation purposes.
Because land is not depreciable, the land value must be separated from the construction cost. This helps make sure the depreciation schedule only includes eligible building works and assets.
Plant and Equipment Depreciation for New Assets
Plant and equipment depreciation applies to eligible assets inside the property that are usually removable, mechanical or separate from the building structure. These assets fall under Division 40 and are claimed based on their effective life.
For a new house and land package, plant and equipment assets may include carpets, blinds, ovens, cooktops, dishwashers, rangehoods, ceiling fans, air conditioning units, smoke alarms, garage door motors and hot water systems. These items often lose value faster than the building itself, so they may create higher deductions in the earlier years of ownership.
You may be able to claim these assets because they are new and have not been previously used. This is one reason house and land packages can be attractive.
The deduction amount depends on the asset type, cost, installation date and depreciation method used. In many cases, your accountant may choose between the prime cost method and the diminishing value method. The prime cost method spreads deductions more evenly, while the diminishing value method can produce higher deductions earlier.
A tax depreciation schedule separates plant and equipment from capital works, making it easier for your accountant to claim the correct amounts.
Can You Claim Depreciation While the Property Is Under Construction?
You generally cannot claim depreciation while a house and land package is still under construction. Depreciation claims usually start once the property is complete and available for rent.
This is because the property must be used, or genuinely available to be used, for income-producing purposes. If the dwelling is still being built, it cannot yet earn rental income. In most cases, you need to wait until handover is complete and the property is listed for lease before claiming depreciation deductions.
However, the construction stage still matters. The records you collect during the build can help support your depreciation claim later. These may include the building contract, final construction cost, variations, plans, invoices, inclusions list and schedule of finishes.
Keeping these documents from the start can make the depreciation schedule more accurate. It can also reduce the risk of missing deductions once the property becomes a rental.
Does Land Depreciate?
Land does not depreciate for tax purposes. This is an important point for investors buying a house and land package because the purchase includes two different parts: the land and the newly built dwelling.
You cannot claim the land component as a depreciation deduction. Land does not wear out or decline in value in the same way as a building or asset. Even if the property value of the land changes over time, it is not treated as a depreciating asset for tax depreciation purposes.
The building, fixed improvements and eligible plant and equipment assets are different. These items may lose value through age, use and maintenance costs, so they may form part of a depreciation claim. A tax depreciation schedule helps separate the non-depreciable land value from the eligible building and asset costs. This separation matters because claiming depreciation on the land component can lead to incorrect tax reporting.
How the 2017 Depreciation Rules Affect House and Land Packages
The 2017 depreciation rule changes limited what Australian property investors can claim for second-hand properties, plant and equipment in income-producing properties. These rules mainly affect investors who buy established properties with equipment items that have already been used.
House and land packages are often different because the dwelling and assets are usually brand new. If you are the first owner and the property has not been previously lived in, you may be able to claim eligible new plant and equipment assets under Division 40.
This can include items such as new carpets, blinds, appliances, air conditioning units and other qualifying assets installed as part of the build. Capital works deductions under Division 43 may also apply to eligible construction costs.
However, you still need to check the details. Asset ownership, installation timing and whether the property was used before being rented can all affect the claim.
What Documents Do You Need for a Depreciation Schedule?
A depreciation schedule is more accurate when your quantity surveyor has clear records for the build. For a house and land package, the most useful documents usually relate to construction cost, settlement details and the assets included in the property.
Key documents may include the building contract, final construction cost, builder variations, floor plans, settlement statement, inclusions list, schedule of finishes, appliance invoices and handover documents. It also helps to record the date the property became available for rent.
These records help separate the land value from the building cost. They also help identify which items fall under capital works and which assets may qualify for plant and equipment depreciation.
You may still be able to claim depreciation if you do not have every document. A qualified quantity surveyor can estimate eligible construction costs where needed. This is useful when invoices are missing, costs are bundled together, or the builder has not separated each asset clearly.
Keeping good records from the start can help your accountant claim the right deductions and reduce the risk of missed depreciation benefits.
Why Investors Need a Tax Depreciation Schedule
A tax depreciation schedule gives your accountant the figures needed to claim depreciation deductions for your house and land package. Without one, you may miss valuable deductions or claim less than you are entitled to.
The report separates capital works from plant and equipment. This matters because each category follows different tax rules, claim rates and timeframes. Capital works deductions usually apply to the building structure and fixed improvements, while plant and equipment depreciation applies to eligible assets with their own effective lives.
For a new property, the schedule can capture eligible construction costs and new assets from the start of the investment. It may also project deductions over future years, which can help you understand the long-term tax position of the property.
For most investors, a depreciation schedule is not just a tax document. It is a planning tool that helps you understand the full after-tax benefit of owning a new rental property.
Common Mistakes Investors Should Avoid
House and land package depreciation can be valuable, but small errors can lead to missed deductions or incorrect claims. One common mistake is assuming the full value paid can be depreciated. Land does not depreciate, so the land value must be separated from the building and eligible assets.
Another mistake is waiting too long to organise a tax depreciation schedule. If you leave it until years after the property becomes available for rent, you may still be able to amend past returns in some cases, but the process can be harder without clear records.
Some investors also forget to keep key documents from the build. Contracts, variations, inclusion lists, handover documents and appliance invoices can help support a more accurate claim.
You also need to avoid claiming depreciation before the property is complete and available for rent. The property must be used, or genuinely available to be used, to produce rental income.
Finally, do not assume all costs fall into the same category. Capital works and plant and equipment have different rules, so they should be separated correctly in the depreciation schedule.
House and Land Package Depreciation Example
A property investor buys a block of land and builds a new rental property. The total project cost includes the land, construction, fixed improvements and new assets. For tax depreciation, these costs need to be separated because not every part can be claimed.
The land value is not depreciable. However, the construction cost of the dwelling may qualify for capital works deductions. This can include the building structure, roof, walls, floors, built-in cabinetry, plumbing, electrical work, tiling and other fixed improvements.
The property may also include new plant and equipment assets. These could include carpets, blinds, appliances, air conditioning units, ceiling fans and a hot water system. These items may be claimed separately based on their effective life.
A tax depreciation schedule brings these details together. It separates the non-depreciable land component from the eligible building and asset costs, then gives the accountant clear annual deduction figures.
This helps the investor claim house and land package depreciation correctly from the first year the property is available for rent.
Getting your House and Land Package Depreciation Strategy Right
House and land package depreciation can be a valuable taxation benefit for property investors. Because the property is brand new, you may be able to claim deductions on both the building structure and eligible new assets once the home is complete and available for rent.
The key is getting the details right. You cannot depreciate land, construction costs need to be separated correctly, and plant and equipment assets must be identified under the right Australian Taxation Office rules.
A tax depreciation schedule helps your accountant claim the correct deductions at tax time. It can also help you understand the long-term taxation benefits of your new investment property.
Let Thrifty Tax help you with your tax depreciation schedule if you are buying or building a house and land package, so you can make the most of eligible depreciation deductions from the start. Get a free quote today.
