Residential tax Depreciation Slashed by Federal Government Legislation 2017
The federal government changes to the depreciation of plant which were proposed in the May budget were passed by the senate on 15th November 2017.
A number of property investors have contacted Melbourne Tax Depreciation as experts in preparation of Tax Depreciation Schedules, to discuss how these changes may affect them.
The good news for investors is that residential properties purchased ( contracts exchanged) prior to 7:30pm on 9th May 2017 are unaffected by the changes, as the prior legislation has been grandfathered.
The changes detailed in the legislation Treasury Laws Amendment (housing Tax Integrity) Bill 2017, essentially deny a subsequent owner’s ability to claim deductions for previously used plant and equipment assets. (these are things are generally easily removed or mechanical fixtures and fittings) and come under division 40 of the legislation.
These new rules only apply to depreciation of assets (division 40) items in second hand properties
Examples of assets that cannot be claimed under the new tax depreciation rules are those that are:
Previously used (either by you or others); or
Not purchased from a retailer (purchased from a friend or family member is not OK): or
Used in a residence (either your own or someone else’s): or
Used in a non-taxable way such as by friends and family, however occasional use would be OK such as a property being used by family for the odd weekend.
There are however some exceptions to the new rules, they are:
If at any time during the income year you are carrying on a business such as
a corporate entity: or
a superannuation fund that is not a self-managed fund: or
a managed investment trust: or
a public unit trust.
New residential property: or
No one resided in residential premises in which the asset has been used before it was held by the current owner: or
The asset was used or installed in new residential premises that were supplied to the taxpayer within six months of the premises being completed and it has not previously been used or installed in a residence: or
Common property
One thing to remember is, that you lose the depreciation deductions on assets if you do either of the following:
Live in the property for any time as your residence: or
Use the residence for a purpose that is not taxable other than occasional use such as a beach house.
It is important to note that depreciation deductions on assets in new residential premises can still be claimed. and of course, you can still claim all depreciation deductions on assets in commercial and industrial properties such as offices, shops and factories.
Division 43 Tax Deductions (Capital Works)
The legislation does not affect depreciation deductions under Division 43 which covers the ‘bricks and mortar’ or shell, structure and fixed items of the building. This usually totals about half of all residential Tax depreciation claims.
