When the second-hand asset restriction does not apply
The 2017 budget change that restricts Division 40 plant and equipment claims on "second-hand" residential properties is specifically about properties where the assets were previously used in a residential (private) capacity. If the property has never been used as someone's home, it falls outside this restriction.
Properties that were never lived in
These residential-style properties can qualify for full plant and equipment depreciation even if you are not the first owner:
New properties straight from a developer or builder: If you buy directly from a developer and the property has never been occupied, the assets are brand new and have not been used residentially. Full Division 40 eligibility applies.
Former display homes: A display home is used commercially — to showcase the builder's work to potential buyers. It has never been a family home. When sold to an investor, full Division 40 depreciation applies.
Commercial use before your purchase: If the property was used for commercial or short-term rental purposes before your purchase (for example, as a serviced apartment or holiday letting operated by a management company), the assets may not have been used as a private residence. This is a complex area requiring careful analysis.
The key test
The ATO's test is whether the plant and equipment assets were previously used in a residential setting. "Residential" means used as someone's home or long-term residence, not for commercial purposes.
When you are in doubt
If the property history is unclear, a quantity surveyor can assess the situation and advise on which assets are eligible for Division 40 claims. The building structure (Division 43 capital works) is never affected by the 2017 changes and is always claimable on post-1985 construction.
Documentation
Keep evidence of the property's prior use, such as:
- The developer's contract or statutory declaration confirming no prior residential occupation
- Building completion certificates
- Any commercial lease agreements showing prior commercial use