Understanding Depreciation vs Capital Gains Tax in Australia
In Australia, property investors benefit from two distinct tax treatments: depreciation deductions and capital gains tax (CGT). Each year you can claim depreciation on eligible building assets and plant & equipment at your full marginal tax rate. This reduces your taxable income and boosts cash flow.
How Depreciation Works
Depreciation allows you to write off the cost of construction, renovations, fixtures and fittings over their effective life. By claiming the full available deduction annually, you lower your taxable income in the short term, generating immediate tax savings.
Capital Gains Tax on Disposal
When you eventually sell the property, any depreciation claimed is added back and increases your capital gain. However, if you’ve held the asset for more than 12 months, you qualify for a 50% CGT discount—meaning only half the net gain is taxed.
The Net Advantage of New Properties
Because depreciation deductions are claimed at your full marginal rate now and only 50% of the gain is taxable later, the tax you save during ownership can exceed the extra CGT paid on sale. Newer properties typically offer higher depreciation deductions, lowering after-tax holding costs and helping investors grow their portfolios faster.
For further guidance, see the ATO’s guide to depreciation and capital expenses.
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