As a Fellow of the Australian Institute of Quantity Surveyors, with over 30 years’ experience in the tax depreciation industry, I have a professional obligation to act with integrity and to speak up where I consider that practices in my industry may mislead the public.
I have serious concerns about the tax depreciation deductions being promoted to property investors buying homes featured on Channel 9’s The Block.
Specifically, that they may be paying inflated prices based on promoted tax depreciation benefits, which under ATO scrutiny may be difficult to substantiate.
If consumers have been misled about the size of the tax depreciation deductions available to them, this may constitute a breach of the Australian Consumer Law.
Headlines such as “Insane Tax Perks” and “Eye-Watering Tax Breaks”, and reports of one house carrying $6 million in deductions, also risk undermining public confidence in both the quantity surveying profession and Australia’s capital allowances regime.
The best way to explain my concerns is to illustrate through the latest season of the Block, House 4, where there appears to be an apparent disconnect between:
- The advertised tax depreciation deductions;
- The actual construction expenditure incurred; and
- The reasonable allocation of the purchase price between land, buildings and plant and equipment.
The Block 2026 – House 4, Mount Eliza
The documentation for House 4, at 9 Mackillop Place, Mount Eliza, raises significant questions about the construction expenditure underlying the proposed tax depreciation deductions.
Page 107 of the property’s contract of sale documentation contains a domestic building insurance certificate identifying a building contract price of $2,100,000.
However, a promoted Tax Depreciation report dated 19 August 2026 identifies:
- Division 40 – Plant and Equipment: $861,678
- Division 43 – Capital Works: $5,222,755
- Total capital expenditure: $6,084,433
That represents a difference of $3,984,433, with the estimated total capital expenditure almost three times the disclosed domestic building contract price.
The depreciation report states that this figure already excludes demolition, soft landscaping and site clearing which cannot be claimed in any event.
While the domestic building contract price may not represent the entirety of qualifying construction expenditure (for example, where some work is carried out under separate contracts), the magnitude of this discrepancy raises an obvious question:
How can approximately $6.08 million in capital expenditure be substantiated when the disclosed domestic building contract price is $2.1 million?
Division 40 – Plant and Equipment
Under Australian taxation law, where depreciating assets are acquired as part of a property purchase, their cost is the part of the purchase price that is reasonably attributable to them, having regard to the value of the land and the building.
An allocation agreed between a vendor and a purchaser dealing at arm’s length in the contract of sale is generally accepted. A figure in a report provided with marketing material is not an agreed allocation.
By way of comparison, during the 2025 season of The Block (House 4), 2 Cedar Lane, Daylesford, sold for $3,060,000, yet the promoted Tax Depreciation report provided with the marketing material attributed $821,669 to plant and equipment.
That amount represented approximately 13.85% of the estimated construction expenditure of $5,934,256.
Even if we assume the land had absolutely no value, applying that same percentage to the entire $3,060,000 purchase price would produce a plant and equipment allocation of approximately $424,000, about half the $821,669 identified in the depreciation report.
In reality, land has value, meaning the amount of the purchase price attributable to the building and plant and equipment would be lower still.
While the proportion of plant and equipment within a property’s market value need not precisely match its proportion of original construction expenditure, a figure nearly twice the amount produced by this comparison is difficult to reconcile without a clear and substantiated explanation.
The 2026 House 4 report similarly attributes $861,678 to plant and equipment. Whether that amount represents a reasonable allocation for an incoming purchaser will depend on the purchase price and relevant circumstances.
Why does this matter?
Plant and equipment generally depreciates more quickly than the building structure. The greater the amount attributed to plant and equipment, the more depreciation may be available in the earlier years of ownership. This can make the tax benefits of an investment property appear substantially more attractive to a prospective purchaser.
Division 43 – Capital Works
Division 43 deductions are based on qualifying construction expenditure actually incurred, rather than the property’s purchase price.
Where a house is built by a developer and sold, the purchaser’s capital works deductions are based on the construction expenditure the developer actually incurred, excluding any profit margin. They are not based on the purchase price, and not on what it would cost to build the house today.
Note: The developer that builds and sells a house is the party that knows what was actually spent on its construction.
ATO Taxation Ruling TR 97/25 permits estimates by appropriately qualified persons, including quantity surveyors, only where the actual construction costs cannot be determined.
However, where actual construction expenditure is available, it should form the basis of the calculation rather than an estimate.
The 2026 House 4 documentation highlights the importance of this distinction. Where a substantial discrepancy exists between a disclosed building contract price and estimated capital works expenditure, a purchaser who relies on the estimate needs to be able to explain and substantiate it if the ATO asks, because the onus of proving a deduction rests with the taxpayer.
Of particular concern, the depreciation report states that no additional actual construction costs were available and that estimates were adopted.
Given the existence of a documented building contract price, and given that the report was prepared for the developer that built the house, it is reasonable to question what steps were taken to obtain and reconcile the actual construction expenditure before arriving at an estimate exceeding $6 million.
The issue is not whether quantity surveyors are entitled to estimate construction costs, but whether those estimates are appropriate and sufficiently substantiated when relevant construction cost information may be available.
Consumer Protection and Industry Implications
Property investors should be aware that a professionally prepared depreciation schedule does not guarantee that the ATO will accept the deductions.
Where construction expenditure cannot be adequately substantiated, purchasers risk having deductions disallowed, potentially resulting in additional tax liabilities, interest and penalties.
Tax depreciation is an important and legitimate incentive for property investment and development.
However, inflated or unsupported estimates may influence purchasing decisions, distort property prices and expose investors to unexpected taxation consequences.
Note: Misleading or unsubstantiated depreciation claims may also expose real estate agents, buyers’ agents and accountants who repeat them to regulatory scrutiny, because the Australian Consumer Law does not require an intention to mislead. Professionals who promote or rely upon such claims without exercising appropriate due diligence may face disciplinary consequences, potentially affecting their licences or professional registrations.
The consequences therefore extend well beyond the quantity surveying profession, potentially undermining confidence across the broader property and financial advisory industries.
Guest author is Tyron Hyde, CEO of Washington Brown Quantity Surveyors. You can read the original article here.
