A new apartment can give property investors useful depreciation deductions. This applies when the property has a new building, modern fixtures and eligible plant and equipment assets.
New apartment depreciation is a non-cash tax deduction. It may lower your taxable income without extra spending after purchase, help cash flow and show the after-tax return from your residential investment property.
For tax purposes, depreciation is calculated based on the asset’s effective life, building cost and Australian Taxation Office rules.
What Is New Apartment Depreciation?
New apartment depreciation allows property owners of income-producing properties to claim depreciation for the decline in value of an apartment and its eligible assets over time.
These claims usually fall into two groups: capital works and plant and equipment depreciation.
A new investment property often comes with new assets. This means investors may claim higher deductions than on many older properties. New investment properties may also offer strong depreciation benefits in the first few years due to less wear and tear.
Checklist Item 1: Confirm the Apartment Is Income-Producing
Before claiming depreciation deductions, confirm that the residential rental property is used to produce income.
In most cases, property investors must rent the apartment or make it truly available for rent to claim deductions. If it is vacant for private reasons, used as a holiday home or used by you for part of the year, your claim may need to change.
Depreciation usually starts when the apartment is ready and available for tenants. It does not always start at settlement.
Checklist Item 2: Check Whether You Have a Depreciation Schedule
A property depreciation schedule is one of the most useful records before tax time. It shows the deductions you may be able to claim each financial year for your new apartment.
A tax depreciation schedule helps your accountant apply the right depreciation method. This may include the prime cost method or the diminishing value method.
It may also include common property deductions, which often apply in strata buildings. Without a depreciation schedule, you may miss deductions or rely on rough figures.
A qualified quantity surveyor can prepare a depreciation report when construction costs, asset values or common property details need expert review.
Checklist Item 3: Separate Capital Works from Plant and Equipment
New apartment depreciation is not claimed as one amount. It must be split into capital works and plant and equipment.
Depreciation category | What it covers | Common apartment examples |
|---|---|---|
Capital works | Structure and fixed improvements | walls, floors, tiles, built-in cabinetry |
Plant and equipment | Removable or mechanical assets | blinds, carpets, appliances, air conditioning |
Each plant and equipment asset is claimed over its asset’s life or asset’s effective life, as set by the ATO. Some assets may give higher early claims under the diminishing value method. This method applies a rate to the asset’s remaining value each year. The prime cost method spreads deductions evenly over the asset’s effective life.
Getting this split right helps your accountant claim the correct depreciation deductions. It also stops all costs from being treated the same way.
Checklist Item 4: Review New Apartment Assets Before Lodging
A new apartment often includes assets that lift your depreciation claim. How much depreciation you can claim depends on the depreciation rate, the construction cost and the depreciation method used.
Before lodging your tax return, check that your depreciation schedule includes eligible plant and equipment assets, such as:
carpets
blinds
ovens
cooktops
rangehoods
dishwashers
air conditioners
hot water systems
smoke alarms
eligible flooring
Each deduction is calculated based on asset value, effective life and the chosen method.
Some assets may give higher early claims under diminishing value. Prime cost spreads equipment depreciation more evenly each year.
Checklist Item 5: Understand the 2017 Second-Hand Asset Rules
New apartments can offer stronger investment property depreciation than many older properties due to the 2017 second-hand asset rules.
Since 9 May 2017, investors who buy a second-hand residential property generally cannot claim depreciation on previously used plant and equipment assets. This includes carpets, blinds, appliances and air conditioning in established apartments.
A brand new property is different because its plant and equipment assets are usually new when purchased. This may allow eligible investors to claim depreciation on those assets, as well as capital works deductions for the building structure.
In many cases, new property can offer longer claim depreciation benefits than older properties.
Checklist Item 6: Include Common Property and Strata Areas
If your apartment is part of a strata building, your claim may extend beyond the apartment itself. Common property assets can help produce income through rental income and tenant appeal.
Many property owners can claim a share of eligible common property depreciation. This may include:
lifts
shared foyers
car parks
gyms
pools
security systems
common area flooring
shared outdoor spaces
A complete property depreciation schedule should include your apartment and your share of eligible common property.
Checklist Item 7: Gather Records for Your Accountant
Your accountant can only claim depreciation deductions supported by the right records.
Useful records to collect include:
depreciation schedule
settlement statement
purchase contract
lease agreement or rental listing evidence
property management statements
invoices for new assets
renovation or upgrade records
body corporate records, if needed
These records help your accountant use the right dates, values and categories in your tax return.
If you bought extra appliances, furniture or fittings for the rental, keep those invoices separate. They may need to be added to your schedule for the relevant financial year.
Checklist Item 8: Check for Missed or Back-Claimable Deductions
Many property owners do not claim new apartment depreciation in the first year. Some do not know they need a depreciation schedule. Others think the claim is too small to matter.
If you missed depreciation in earlier years, you may still have options. A retrospective depreciation schedule can identify deductions from when your apartment became income-producing.
Your accountant can advise whether amending past tax returns suits your personal circumstances. Claiming depreciation deductions for missed years may help improve your tax benefits and ensure no missed or understated deductions are left before tax time.
Final Checklist Before You Claim New Apartment Depreciation
Before tax time, review your new apartment depreciation records. This helps your accountant lodge with accurate details for tax purposes and ATO compliance.
Check that:
your apartment was rented or genuinely available for rent
you have a current depreciation schedule for your investment property
your depreciation schedule includes capital works allowance and plant and equipment depreciation
eligible common property and strata areas have been included
assets purchased after settlement have been recorded
your accountant has your lease, settlement and property management records
missed or back-claimable deductions have been discussed
Claiming depreciation may reduce the cost base of your property. Seek tax advice to understand how this applies to your personal circumstances.
Need help before you lodge? Contact Thrifty Tax for a free quote on your new apartment depreciation schedule and ensure your deductions are ready before tax time.
FAQs About New Apartment Depreciation Before Tax Time
Can I claim depreciation on a new apartment?
Yes, you may claim depreciation on a new apartment if it is rented or truly available for rent. Property investors are able to claim depreciation deductions when the property is income-producing.
Do I need a depreciation schedule for a new apartment?
Yes, it is strongly recommended. A depreciation schedule gives your accountant the figures needed to claim apartment depreciation deductions correctly.
What can I claim on a new apartment depreciation schedule?
A new apartment depreciation schedule may include the building structure, fixed improvements, eligible depreciating assets and separate depreciating assets such as plant items and contents.
Can I claim depreciation if I forgot to claim it in earlier years?
Yes, a retrospective depreciation schedule can identify past deductions. You may be able to claim deductions or claim depreciation deductions for missed years by amending past returns. Your accountant should confirm whether this suits your personal circumstances.
Are common property deductions included for new apartments?
Yes, if your apartment is part of a strata building, your schedule may include your share of eligible common property assets.
