The legislated negative gearing changes make the new versus established property decision more financially significant than it has been in decades.
New builds may offer: continued negative gearing eligibility, full plant and equipment depreciation deductions under Division 40 of ITAA 1997, stronger early depreciation profiles, clearer construction cost records for Division 43 capital works, and potential builder or developer depreciation estimates.
Established properties may offer: better location in some markets, a higher land component relative to improvements, renovation potential with its own depreciation and capital works entitlements, existing rental history, capital works from previous renovations, common property deductions in strata buildings, and potentially a lower entry price.
The right answer depends on the investor individual goals. The framework for comparison must now include negative gearing eligibility, not just purchase price and yield. Investors should consider rental yield, vacancy risk, debt cost, depreciation, their own tax position, growth potential, land value, body corporate costs, repair costs, exit strategy, and long-term CGT treatment.
In our experience preparing depreciation schedules for both new and established properties, the depreciation difference is often less dramatic than marketing suggests. New properties have more plant and equipment, but established properties with recent renovations or common property improvements can still carry meaningful deductions. The key is getting an accurate schedule.
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