Plant and equipment depreciation when buying from a developer
The 2017 budget change that restricted Division 40 (plant and equipment) depreciation was aimed at second-hand residential properties — that is, properties where someone has previously lived. Buying from a developer generally means the property has never been used as a residence, so the restriction does not apply.
The key test
The ATO's restriction applies when you acquire a residential property where the plant and equipment assets were previously used. If the property is newly constructed and has never been occupied as someone's home, the assets are not "previously used" — so you can claim them in full.
Properties that qualify for full plant and equipment depreciation when bought from a developer:
- Apartments bought off the plan and purchased directly from the developer
- House and land packages where the builder sells to you directly
- Display homes sold by the developer at the end of the display period (see separate guide on display homes)
- Properties completed by a developer but never occupied
What you can claim
Everything the developer installed — ovens, dishwashers, air conditioners, hot water systems, carpets, blinds, and more — can be depreciated using the ATO's effective life rules. A quantity surveyor will itemise every asset and assign the correct depreciation rate.
What if the developer sold to someone else first?
If the property was bought new by another investor who then sells it to you without ever occupying it as their home, the ATO's position is nuanced. The restriction technically applies on the second sale if the first buyer was entitled to Division 40 claims. This is a complex area — speak to your tax advisor and quantity surveyor before assuming full eligibility.
Division 43 is always available
Regardless of who you buy from, Division 43 capital works deductions on the building structure are not affected by the 2017 changes. You can always claim the building portion at 2.5% per year on a post-1985 construction.
Summary
Buying directly from a developer of a new property gives you full access to Division 40 plant and equipment depreciation. This is one of the key tax advantages of buying new rather than established.