Negative gearing changes: why property investors should review tax depreciation

Property investors are paying close attention to changes and commentary around negative gearing, capital gains tax and the way residential investment property may be treated in future.

The immediate question for many owners is whether the property still makes sense to hold, whether future purchases need to be assessed differently and whether all eligible deductions are being properly claimed.

Negative gearing often receives the headline attention, but it is only one part of the broader investment equation. Depreciation can also affect after-tax cash flow, particularly where a property has eligible capital works, newer improvements, renovations, common property assets or commercial components.

Negative gearing generally relates to the relationship between rental income and deductible property expenses. If expenses exceed income, the property may produce a tax loss, subject to the rules that apply to the investor.

Tax depreciation is different. It is a non-cash deduction based on the decline in value of eligible building works and assets.

For investors reviewing their position, that can matter. A property that looks marginal before depreciation may look different once eligible deductions are properly calculated and reviewed by your accountant.

A common mistake is assuming that an older property has no depreciation value. That is not always correct.

Even where second-hand residential plant and equipment rules limit some claims, capital works deductions may still be available. Renovations, extensions, structural improvements, common property works and previous upgrades may also need to be reviewed.

This is particularly relevant in Melbourne and established Victorian suburbs, where many investment properties are older, renovated, strata-titled or have had works completed over time.

Investor commentary often shifts toward new property, off-the-plan purchases or commercial property when residential tax settings change.

Each property type can have different depreciation considerations. New residential property may include stronger plant and equipment potential because assets have not previously been used. Commercial property can also involve different depreciation treatment and a broader range of depreciable assets, depending on the property type and use.

Before buying, refinancing or restructuring, investors should understand the likely depreciation profile of the asset they are considering.

A tax depreciation schedule is worth considering if you have purchased an investment property, converted a former home into a rental, bought a renovated property, acquired a new or off-the-plan property, or own commercial or mixed-use property.

It can also be useful when your accountant asks for a quantity surveyor report or when you are reviewing cash flow after tax, lending or policy changes.

The earlier the report is prepared, the sooner your accountant can assess the available deductions and apply them to your circumstances.

If property tax settings are changing, investors should avoid making decisions with incomplete information.

A tax depreciation schedule will not answer every investment question, and it is not tax advice. But it can give your accountant clearer information about eligible building allowances and depreciation deductions, helping you claim with more confidence and avoid leaving eligible deductions or tax write-offs unclaimed.