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Holiday Home Depreciation New Laws

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The most basic way to understand a house depreciation report is by stating a question followed by an example. Is it possible to claim depreciation on equipment and plant on a home which is just used for holidays? Or, can I use it only once or twice throughout the entire year? It is considered to be one of the biggest grey areas, which is a part of the entire legislative changes. It is something which further requires clarification when moving forward with this very situation.

There are numerous ways through which one can make the other understand the house depreciation report. And that is by generating examples after examples along with potential situations that can take place.

Understanding the House Depreciation Report

Starting with ‘The Government’, from the Housing Tax Bill Memorandum, it clearly states – if the respective property is ‘occasionally used’ or use through an ‘incidental way’, then the depreciation eligibility you are bound with goes on and doesn’t stop. It only occurs if you happen to acquire your equipment and plant before ‘The Budget’ gets introduced in the month of May 2017.

Let us understand where ‘Incidental Use’ takes us

One’s usage is considered to be incidental if the number of times the property has been used lies in a minor scale and arises when it is connected with the other non-incidental usage. Let’s take an example to have a better understanding. “If you stay at your property for a single evening and at the same time, carry out the maintenance activities”. This very situation would fall into the category of an ‘incidental use’.

Now let us understand what ‘Occasional Use’ is?

The term ‘Occasional Use’ clearly signifies the meaning itself. If you are spending the weekend in your holiday home or even giving an allowance to your relatives or known ones to stay at the same home for a weekend with no charges. This situational act then can be referred to as ‘occasional use’. The example is quite vague, but doesn’t it solve your query?

Well, let’s take another example for that matter. ‘If you are spending one week in an entire year at your holiday home, does this situation nullify the whole claim? What if, you plan on staying at the same place for Christmas and Easter?’

This can cause a whole set of further questions. Questions such as ‘do all the landlords of Airbnb carry out their building tax depreciation claims and then set to move in when the time is quiet but then acquired the whole property prior to the respective budget?

Such landlords might have gone into making such investments with mathematical calculations so that they can claim the house depreciation report. This can also be done through the pro-rata basis, which is further based on the tax laws carried out at that time.

With such combinations, now if they happen to utilise the very same apartment for an ‘x’ amount of time, the depreciation deduction might get disallowed.

Know what the Memorandum has to say?

In the meanwhile, while the Memorandum does not provide a right frame of time, it indicates that out of every possibility, a weekend spent comes out to be a bit okay. Who knows, how can an individual stretch the number of weeks spent at their respective properties? Well, you might have to pick a number?

This is done at a time when the Australian Taxation Office (ATO) wants to lay their target on Airbnb hosts. This also works by pro-rata any gain tax exemptions on the capital, if only they are applicable.

It largely depends on us, how we figure the house depreciation report out. To conclude this explanation, if your holiday home happens to be out or clearly for rent for eleven months in a year, it will still be considered as your investment property.

The one depreciation law change you absolutely need to know

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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.