For developers who build and sell, the project ends at settlement. But for developers who build and hold, the story is very different. Once your project becomes an income-producing asset, whether residential, commercial, industrial or mixed-use, you unlock one of the most powerful tax tools available in Australia: property depreciation. Yet many developers still miss out on tens (sometimes hundreds) of thousands of dollars in deductions simply because they don’t obtain a Tax Depreciation Report.
What is a Property Depreciation?
In Australia, the ATO allows property owners to claim deductions for the natural wear and tear of:
- Division 43 – Capital Works (the building structure)
- Division 40 – Plant & Equipment (fixtures and fittings)
For new builds, these deductions are often substantial, especially when you’re the developer and know exactly what went into the project.
Why Developers Who Build and Hold Benefit the Most
The Strata Management Statement (SMS) is the key document that underpins a BMC. It is legally binding and sets out how the building is managed, including how decisions are made and how shared costs are allocated.
1. You’re the first owner, so you get the full benefit.
Under ATO rules, the first owner of a newly built property can claim full Division 40 deductions on eligible assets. Investors who buy second-hand residential properties cannot claim these items, but you can, because you built it.
2. Your construction costs are fully known.
Unlike regular investors, you have access to:
- Actual construction costs
- Material specifications
- Plant and equipment schedules
- Architectural and engineering details
This means your Tax Depreciation Report can be more accurate and more valuable.
3. You can claim capital works for 40 years
Division 43 allows a deduction of 2.5% per year for 40 years from the date construction is completed. For a new development, that’s decades of tax benefits.
4. Depreciation improves cash flow immediately
Depreciation is a non-cash deduction. You don’t spend anything to claim it, yet it reduces your taxable income, boosting your after-tax cash flow from day one.
5. Refinancing
A Tax Depreciation Report can also support future refinancing decisions. By improving your after-tax cash flow through additional deductions, depreciation can strengthen the financial performance of the asset. This may help demonstrate stronger income from the property when lenders assess refinancing options for your development or portfolio.
6. Portfolio Valuation
Depreciation reporting can also contribute to a clearer understanding of your property portfolio’s financial performance. By identifying the value of building components and assets over time, a depreciation schedule helps investors and developers track the financial lifecycle of their properties and make more informed portfolio decisions.
7. Long-term Investment Strategy
For developers who plan to hold assets over the long term, depreciation becomes a key component of strategic tax planning. The ongoing deductions available over the life of the building can support long-term investment returns, helping to optimise cash flow and improve the overall financial efficiency of the asset.
Who Can Claim Tax Depreciation? (ATO Ownership Rules)
The ATO allows depreciation claims for any entity that owns an income-producing property, including:
| Ownership Type | Eligible for Depreciation? |
| Individuals | Yes |
| Companies | Yes |
| Trusts | Yes |
| Partnerships | Yes |
| SMSFs | Yes (subject to rules) |
| Developers who build-to-hold | Absolutely |
The Bottom Line
If you’re a developer who builds and holds, a Tax Depreciation Report isn’t optional; it’s a financial advantage you’re entitled to under Australian tax law. You’ve already invested in the construction. Claiming depreciation ensures you’re not leaving money on the table for the next 40 years.