The 2017/18 Federal Budget brought about some changes that directly affect investors looking at properties to buy in the future. Starting from May 9th 2017, the ability to claim depreciation on certain assets has changed.
From July 1, 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties.
So what does this mean?
When you buy a property from a previous investor, you can’t claim the plant and equipment deductions. Capital works aren’t affected, so you can still earn money back from this.
Plant and equipment are the ‘easily removable’ items located in the property such as bins, white goods and any other furniture that you bought for the home. Remember that anything $300 or less can instantly get written off as an expense.
I bought a property before the May 9th announcement
Then you’re in the clear. You can still claim plant and equipment depreciation if you settled the home before 7:30 pm on May 9th.
If you settled after, then unfortunately you’re out of luck. It doesn’t matter if those taps or that couch are a few months old. To claim, you must ‘incur the expense’ yourself.
So what CAN I do?
Capital works depreciation is still claimable, so investor’s don’t totally lose out. You can also pay less capital gains tax when the property sells for a profit. Simply subtract the resale value of the plant and equipment from the time of purchase to how much it’s valued by the time you sell.
Purchase value – resale value = CGT offset
Investor’s won’t have to do the maths themselves, however. The quantity surveyor writes these calculations on the depreciation schedule.
Do I need to rethink my investment strategy?
You certainly need to scrutinise potential purchases a lot more closely. Your aim is to generate income from a rental property, whether commercial or residential. There’ll always be a debt and recovery period before you make a profit. With the new law changes, investors will look at new homes now more than ever over second-hand properties.