Owner-builders in Australia can claim depreciation on their investment properties, but the rules are specific. Under Division 43 of ITAA 1997, you can claim capital works deductions on the building structure if the construction commenced after 16 September 1987. This includes elements such as walls, floors, and the roof. However, to claim plant and equipment depreciation under Division 40, you must be the first owner using the property for income-producing purposes.
A common misconception is that owner-builders can't claim any depreciation because they built the property themselves. This isn't true. As long as the property is used to generate income, and the construction meets the required dates, depreciation is available.
To see how this plays out, consider a practical example. Imagine you built a 3-bedroom house in Geelong, Victoria, completing it in 2020 with a total construction cost of $600,000. You decide to rent it out. Under Division 43, you could claim approximately $15,000 annually as a capital works deduction, assuming a 2.5% rate over 40 years. If you installed new appliances worth $50,000, these could be claimed under Division 40, potentially saving you an additional $7,500 in the first year alone, depending on the effective life and depreciation method.
In our experience reviewing thousands of properties across Australia, owner-builders often fail to maintain proper records of construction costs, which can severely limit their depreciation claims. Another frequent oversight is not realising that only new plant and equipment can be depreciated if you're the first income-producing owner. Many also miss the opportunity to claim depreciation on landscaping and outdoor structures as part of capital works.
The answer can differ depending on your situation. If you built the property before 16 September 1987, you cannot claim capital works deductions. If you've lived in the property before renting it out, the plant and equipment depreciation might not be available under the 2017 budget changes. For properties held in a self-managed super fund (SMSF), the ability to claim depreciation depends on the fund's structure and compliance.
When it comes to optimising your claim, working with a Chartered Quantity Surveyor and your accountant is crucial. A QS can accurately assess your property's eligible deductions, while an accountant ensures your tax position is optimised.