The 2017 Federal Budget has brought about some changes that will affect any investor holding, or thinking of buying, residential properties.
Purchased property after May 9th, 2017?
Then you need to know the new rules.
As many experienced investors know, depreciation reports have two categories: capital works, and plant and equipment. Capital works includes the walls, floor, wiring, and anything else fixed to the building. Plant and equipment on the other hand, includes items that you can take from the home like curtains, appliances/white goods, and even smoke detectors.
The Federal Budget changes only affect the plant and equipment category in residential homes.
From July 1, 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties.
What does this mean? You can only claim depreciation on fixtures you installed yourself. If you’ve purchased a ‘second hand’ property from another investor after May 9th 2017, you’re no longer able to claim plant and equipment items inside.
So what are the do’s and dont’s?
You can claim depreciation if:
You settled the property before May 9th 2017
You purchased a brand new property after May 9th 2017
You hired a builder to build a home for investment purposes and it remains in your portfolio
You renovate the property and install new plant and equipment
You can’t claim depreciation on plant and equipment, however, if:
You bought the property from another investor, making it ‘second hand’
There is a positive from all this
Can’t claim the depreciation? Well, you can pay less Capital Gains Tax (CGT), instead. To counteract the sting of CGT, subtract the resale value of the plant and equipment from the time you bought it, to how much it’s valued by the time you sell it.
Purchase value – resale value = CGT offset
You get all this on your depreciation schedule
Our experienced quantity surveyors are well-versed in tax law. When you order a depreciation schedule, what you’ll get back will be in line with the new Federal Budget. Engaging our services guarantees you’ll receive an ATO compliant, comprehensive document that gives you access to maximum entitlements.