New Property Depreciation Laws
If you purchased a second-hand residential property after 7:30 p.m on 9 May 2017 you will not be eligible to claim depreciation on plant and equipment assets. Plant and equipment assets are the easily removable or mechanical items found within an investment property. These include things such as air conditioner units, dishwashers, carpets and solar panels. If the property is purchased new, these items can still be depreciated.
According to the Chief Executive Officer of BMT Tax Depreciation, Bradley Beer, ” “This change will have a major impact on investors, essentially reducing the annual deductions they can claim therefore reducing their tax refund each year. This could lead to investors being in a tighter financial position and may discourage future investors from purchasing a second hand residential property.” Capital work deductions are still claimable.
The ATO states that:
The changes do not affect deductions that arise in the course of carrying on a business, or for:
- corporate tax entities
- superannuation plans other than self-managed superannuation funds
- public unit trusts
- managed investment trusts
- unit trusts or partnerships whose members are the above listed entities.
It is useful to know that:
● Properties which have been lived in and turned into an investment property by their owners prior to the 1st of July 2017 are not affected. Owners can continue to claim plant and equipment depreciation and capital works deductions. If you lease your previous residence after the 1st of July, 2017 you will not be able to claim depreciation on pre-existing plant and equipment.
● The new legislation restricts an owner from claiming depreciation on any previously used plant and equipment assets unless the asset is considered trading stock
● Regardless of how existing assets are treated, under this scenario, owners can claim depreciation on all assets they add to the property. So the costs of improvements made after 1st of July can be depreciated.
To read more about the effect of this legislation on Capital Gains Tax, how these changes will effect deductions and the changes to depreciation schedules please download the Property Depreciation Legislation Changes Facts Booklet from BMT.
So, Landlords when we ask you to instal an air-conditioner to make your property more attractive to tenants, you will be able to depreciate these improvement costs. You will also still be able to depreciate newly installed smoke alarms, dishwashers, blinds, curtains, garbage bins and heaters.
Buyer Solutions often buys run down, but structurally sound properties and then we do a make over and improve amenity for future tenants. If you would like to know more about this approach to property investing please book a complimentary 45 minute consultation to find out more.
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