August 2026
Is it the end of August already?
How tax season flies.
We’re deep into the second wave of tax season. The first is in June when property investors know they need a new Depreciation Schedule and get onto it.
The second wave is when people start seeing their accountant and are told to get in touch with us. Most of our work comes from accountants. Always has – 24 years and counting. Accountants know that we know what we’re doing.
Are you one of those property investors? If you need a new Depreciation Schedule make an enquiry.
So what things have property investors discovered this tax season?
Key takeaways
- 1. Completing renovations before 1 July 2027 to existing properties may be important to help increase your property value and take advantage of the 50% CGT discount.
- 2. Property investors are turning to commercial property after the May Budget to take advantage of negative gearing, and the ability to claim second hand Assets.
- 3. New builds will also be a popular option for property investors with negative gearing allowed, and the added bonus of being able to claim the Assets in the property (if your tenants are the first people to live there).
- 4. The ATO is checking expenses claimed from your Property Managers. Make sure you’re claiming repairs vs improvements correctly.
Why completing renovations and getting a higher valuation before 1 July 2027 will be important
The May 2026 Budget changes have made it more important than ever to get a higher valuation and to keep records of changes and improvements made to your investment properties.
You may want to consider making those improvements this financial year on investment properties you already hold to increase your property’s value and take advantage of the 50% CGT discount. Remember, this is not financial advice. You should speak to your accountant about your particular circumstances.
Any increase in your property’s value that happens before 1 July 2027 can still receive the 50% discount when you eventually sell. Any increase that happens after that date will instead be taxed on a cost base indexation plus a 30% minimum tax rate- regardless of your marginal tax rate.
Does it matter if you renovate before or after 1 July 2027? The question should be ‘which side of the 30 June 2027 line does the uplift land on?’, because that determines which tax regime taxes it.
Let’s use a simple example, like a $35K bathroom renovation on a house valued at $900,000 with the assumption this could increase the value to, say, $970,000.
| Renovate before 1 July 2027 | Renovate after 1 July 2027 | |
| Regime applied to the $70k uplift | Old rules (50% discount) | New rules (indexation + 30% minimum) |
| Nominal gain | $70,000 | $70,000 |
| Discount / indexation adjustment | 50% discount → $35,000 taxable | ~4% CPI indexation → ~$67,200 taxable (real gain) |
| Tax rate applied | 45% + 2% Medicare levy | 30% minimum rate |
| Approx. tax payable on this $70k | $16,000 | >$20,000 |
If you waited, the difference is roughly $4,000 more tax if the $70,000 value uplift is deemed to be accrued after 1 July 2027, versus before it.
Don’t forget as well, that you’ll also be claiming additional depreciation on the bathroom renovation of about $1000 per year, and you might also be charging your tenants more rent post the renovation.
The same will apply for more modest improvements.
Note the word ‘improvements’, as opposed to repairs.
Any genuine repairs, your accountant can claim as an immediate deduction. Improvements, like a new bathroom, to your investment property should be recorded and depreciated over time. We’ve written about repairs vs improvements often – you can read more on this here.
And did you know that if you add something to your property that is less than $300, you can claim it back as a 100% tax deduction? Yep, if you need to install a new exhaust fan, or a new microwave etc, you can take that cost straight to your accountant to claim back. Have a chat with your accountant for more information.
Why property investors turn to Depreciator for commercial properties
The interest in commercial properties has been prompted by that May Budget.
You will recall that commercial property escaped unscathed. There were no changes at all. No changes to negative gearing, and no changes to the CGT regime.
The same thing happened in 2017 when there were changes made to the treatment of Assets (Plant and Equipment) in rental properties. Again. Commercial properties were not affected.
We saw a flight to commercial back then, and we anticipate one this time.
We also anticipate providers who have only ever done Depreciation Schedules on residential properties dipping their toes in commercial waters. And possibly pulling out those toes quickly when they realise commercial take considerable experience to get right – 24 years of experience.
One thing many providers miss is the fact that some commercial buildings can be depreciated at 4% (vs 2.5%). Manufacturing properties qualify for that. The reason being that buildings where manufacturing happens are likely to suffer more wear and tear. A joinery factory, for example, might qualify. Or a company that manufactures aluminium windows.
We were contacted recently by an accountant whose client had a Depreciation Schedule for a recently purchased commercial property. They thought that instead of 2.5% being used for the Capital Works deduction, 4% was possible.
We agreed. The building was used for the processing of reclaimed timber (ex demolition). The timber was milled and dressed and then made into furniture. That building had a hard life with that manufacturing operation:
- – It was built in 2012 at an estimated cost of $658K.
- – At 2.5%, the Capital Works were being claimed at $16,450.
- – At 4%, that figure would be $26,320 – an extra $10,000 in Capital Works every year.
In a lot of the commercial jobs we do, there are also often two entities involved. There can be a landlord who owns the building, and a related entity tenant that is a related that has paid for the fit out. In these cases we’ll be doing two Depreciation Schedules.
Then there are the situations where a landlord is an unrelated entity and has made a contribution to the fitout and expects the tenant to provide them with a Depreciation Schedule.
That’s just some of the twists in commercial depreciation. And we can take care of them all. You can read more on commercial properties here.
Why new build properties are now more attractive to property investors
Nothing has changed for newly built residential properties, either. Builders we deal with are already getting lots of enquiries from interested investor clients.
Newly built properties, houses and apartments, still qualify for the generous negative gearing arrangements.
Every day of the week, we do Depreciation Schedules on new houses where there is a very prescriptive build contract. That very clear contract will have a total build cost of the house including driveways and fencing. Let’s say the build cost is $335,000 (excluding land). Depreciation in the first full year on that $335,000 house will be around $13,000. Here’s how:
- – That contract will also list all the Depreciating Assets in the house. We then ascribe an OWDV to those items. Typically they will cumulatively equate to 8-9% of the total build cost – perhaps $30,000.
- – The net build cost might end up around $305,000, which gets claimed at 2.5% per year – $7,625. And that $30K of Assets is mostly claimed in the first 6-8 years.
- – Depreciation in the first full year on that $335,000 house will be around $13,000.
The whole reason behind the tax change was to encourage people to chip in and build more properties for people to live in. So these new properties need to add to the current supply of homes.
A new apartment does that for sure.
But knocking down a house and building a single house in it’s place does not qualify – that’s because one house is being replaced by another i.e. there is no boost to supply.
A duplex would qualify – two houses in the place of one.
And building a granny flat would qualify.
And of course new houses built on ‘brownfield or greenfield sites’ qualify. Brownfield sites are ones where there were often redundant commercial buildings. Greenfield sites are ones where cows and trees formerly resided.
We have of course been doing Depreciation Schedules on new properties for 24 years. And we do them quickly, because often they don’t need to be inspected. If the costs are available, they must be used. Don’t let anybody tell you otherwise – they just want to charge you more. You can read more on New Builds here.
What the ATO is looking out for this year
It’s not just taxpayers to whom the ATO gives helpful guidance. Tax agents probably get even more suggestions.
This time is the advice to not take property manager statements as gospel in relation to repairs.
Have you heard the term ‘initial repairs’? It’s an ATO distinction and it refers to work done to a property soon after purchase in preparation for rental.
The ATO’s definition of eligible repairs is for a taxpayer to claim an immediate deduction for damage or deterioration that occurred while they were renting out the property. Initial repairs are those that deal with issues before the property is rented out.
Initial repairs need to be depreciated. If you buy a property and realise when you get the keys that the paint is very shabby and the property really needs repainting, that is not a repair for you. It needs to be depreciated at 2.5% per year. Yep.
But on a property manager statement, if they organised that work, it will just show up as repairs. The ATO advice to tax agents is to dig deeper with property manager statements. You can read more on this from the ATO here.
Do you have a residential or commercial property you would like us to help you claim depreciation for? Or a question about depreciation?
Order online now or call us on 1300 660 033 and rely on our 20-plus years of experience in estimating depreciation returns.
