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 signed the contract 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.
What is a property depreciation report?
A property depreciation report (also called a depreciation schedule) sets out all tax depreciation and building write-off claims for a new or existing investment property.
A DEPPRO property depreciation tax report provides a 40-year schedule for capital works allowance (building write-off) and depreciable assets (plant and equipment allowance) on an investment property, ensuring owners receive the maximum tax entitlements.
Based on your allowances, the report calculates the amount you can deduct each year as part of your tax return.
What can tax depreciation do for investors?
Claiming tax depreciation allowances on an investment property increases its value by giving investors greater return on their investment.
Depreciation allowances combined with additional negative gearing factors such as interest on a mortgage, repairs and maintenance can help investors reduce their taxable income, pay less tax and improve cash flow.
The savings made can then be redirected to other areas, such as an investment mortgage or other debt reduction.
DEPPRO can help all owners achieve maximum tax benefits from their investment property, no matter the size or age.
If you have a property that you are using, or would like to use as a depreciation for tax, or for more information on how property depreciation can reduce your tax, please call 1300 888 489.