Treasurer Scott Morrison’s 2017 federal budget includes proposed changes that will affect residential property investors Australia-wide, and not in a good way, says one well-known tax expert.
According to BMT Tax Depreciation, the ATO allows owners of income-producing property to claim depreciation deductions for the wear and tear to a building’s structure and the plant and equipment assets within, but the proposed changes relate to the eligibility to claim this deduction.
“Currently, investors are eligible to claim qualifying plant and equipment depreciation on assets found in an investment property they purchase, even if they were installed by a previous owner,” CEO Bradley Beer said.
“Under the new rules which are yet to be legislated by Parliament, investors will be able to depreciate new plant and equipment assets and items they add to their property. However, subsequent owners will not be able to claim depreciation on existing plant and equipment assets.”
Mr Beer said this change will have a “major” impact on investors.
“Essentially reducing the annual deductions they can claim, therefore reducing their cash return 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.”
Mr Beer said it is his understanding that if the property is new, investors will continue to depreciate plant and equipment as before, but he is “seeking further clarification on this.”
“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.”
Mr Beer said the budget notes are 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,” he said.
“If a property investor exchanges contracts to purchase a second-hand property after 7.30pm on the 9th May, there could be different depreciation rules applicable to their scenario.
“We are currently speaking with government to further understand the intricacies relating to the budget notes and the proposed changes to depreciation of plant and equipment assets.”