Depreciation on Renovations – What Are Substantial Renovations and Do I Qualify?

There is a big change in claiming depreciation on renovated properties ever since the Federal Budget 2017 made some changes. Before the introduction of these changes, landlords were eligible to claim depreciation on pre-existing plant and equipment. They could also claim depreciation on renovations undertaken by the earlier owners. Now properties bought after May 9, 2017, will not be eligible to claim plant and equipment installed by the earlier owner. What will happen if the present owner of the property decides to undertake some major renovations and lease it out? The investor will become eligible to claim both plant and equipment or Division 40 along with Capital Works of Division 43.

The leading property depreciation consultants share the following vital points for your consideration:

1. Goods and Services Tax Ruling:

A per the GSTR 2003/03 Act, if a property is renovated extensively, it is known as alterations to the building. It is performed by eliminating or replacing the building to a larger level. Renovation can be defined as reviving, restoring or making the building new once again in a better condition. The renovations must not include removal of foundations, floors, staircases, interior supporting wall, external walls, roofs, etc. The renovation should also not involve structural changes but at the same time affect the building as a whole. It will also depend upon the quantity surveyor’s judgment to explain the ‘substantial renovations’.

2. If Substantial Renovation Takes Place:

If substantial renovation happens, the property will be referred to a new residential space. In combination with this, the investor will be eligible to claim both elements of depreciation. Therefore, the previously existing hugely renovated properties will be considered as a newly existing property under tax depreciation. But, the brand new installed basic equipment in the kitchen or bathroom will not be considered as part of substantial renovation. It will prove helpful to you in correct property valuation of your property.

An Example to Make Things Clear:

The example will come handy while preparing the tax depreciation schedules. For instance, David has invested in a residential house constructed in the year 1993. The house witnessed some wear and tear as a result of its age. Therefore, David plans to add value to the property with the help of renovations. David introduces changes to the building by adding a kitchen, bathroom, light fittings, AC, roof restoration, electrical rewiring, etc. Soon after completion, David sells his property to Brad. The sale takes place on October 15, 2018. As a result of the renovation, this will be fit enough to be called as substantial renovations. This will allow the new investor to claim both Division 40 and Division 43. The amendment in the GST act will not affect claims to Capital Work deduction pertaining to Division 43 of the Income Tax Assessment Act.


The above points will help you in deciding if your property qualifies for substantial renovations. You should include all of the available deductions for your investment property to boost your wealth. Depreciating assets for tax purposes will become far more simple with professional help. The recent changes in the Federal Budget 2017 may cause confusion. You can always contact experts who will make things clear for you and help to maximise your profits.

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