The Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 passed through Parliament November 15 which means owners of second-hand residential properties will be ineligible to claim depreciation on certain assets.
Thousands of property investors will be impacted, with an average loss of around $4236 per year in depreciation related deductions over the first five years of ownership.
However, there is no change to capital works rules. These deductions typically make up between 85 to 90 per cent of an investors’ total claimable amount.
These changes were announced in the May 2017 Federal Budget.
The amendment to depreciation rules as detailed in the bill, mean that property investors can no longer claim depreciation for plant and equipment assets, such as air conditioning units, solar panels or carpet, in second-hand residential properties (where contracts were exchanged after 7:30pm on the 9th of May 2017).
BMT Tax Depreciation Chief Executive Officer, Bradley Beer, said: “According to our analysis over the first five years of ownership the new law will result in an average loss of around $4,236 in depreciation deductions each year for those impacted.”
Depreciation deductions are split into two components, plant and equipment and capital works allowance.
“The new rules do not affect capital works deductions for the structural component of a property or any fixed items that can be claimed such as doors, basins or retaining walls. These deductions typically make up between 85 to 90 per cent of a total claimable amount,” said Mr Beer.
“On average, the owner of a three-year-old house purchased for $600,000 (after 7:30pm on the 9th of May 2017) could expect to claim around $6,126 in capital works deductions in the first full financial year alone.”
The new rules apply to only a portion of the market, specifically, those investors who purchase a second-hand residential property after 7:30pm on the 9th of May 2017.
Previously existing legislation will be grandfathered, which means investors who already made a purchase prior to this date can continue to claim depreciation deductions as per before.
Investors who purchase brand new residential properties and commercial owners or tenants, who use their property for the purposes of carrying on a business, are also unaffected.