May 23, 2017 Rebecca Mackie

Budget changes to depreciation for investment properties

Rebecca Mackie

Rebecca Mackie

Partner
Rebecca Mackie has extensive experience dealing with tax and structuring advice for property investors and developers.

The latest federal budget has seen changes to the way property investors can claim depreciation. This will potentially cost investors thousands, although it is yet to be legislated.

The measures, announced on budget night, read as follows: “From July 1, 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans.”

Mr Bradley Beer from BMT Depreciation said “It is our understanding at this stage that if the property is new, they will be able to continue to depreciate plant and equipment as they were previously. We are seeking further clarification on this”.

What this means for property investors is that they can only claim depreciation on items such as carpets, air conditioners and other fixtures that they paid for themselves, presumably by buying the property brand new. Up until now, investors who bought established properties could continue to claim depreciation on plant and equipment installed by previous owners – this will now cease. Investors will still be able to claim capital works deductions also known as building write off, including any additional capital works carried out by a previous owner.

The budget notes were clear that existing investments will be grandfathered. This means that anyone who has purchased a property up until the 9th of May 2017 will be able to claim depreciation as per normal.

If a property investor exchanges contracts to purchase a second hand property after 7:30pm on the 9th May 2017, there may be different depreciation rules applicable to their scenario. This change will have a major impact on investors by reducing the annual dedications they can claim and therefore reducing their cash return each year.

In addition, property investors will no longer be able to claim travel expenses for trips taken to view their investment properties. This change is based on the belief that investors have been rorting the system. For example, claiming their Queensland family holiday because they own an investment property there.

It is important to remember that both of these proposals are yet to be legislated, so we may see changes before they pass through parliament. As these proposed budget changes progress, we will keep you updated on how this may affect you and your investment property.

Rebecca Mackie, Partner, Paris Financial

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Image courtesy of fantasista at FreeDigitalPhotos.net

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Rebecca Mackie

Rebecca Mackie

Partner
Rebecca Mackie has extensive experience dealing with tax and structuring advice for property investors and developers.

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