Why and how do these changes affect passionate property investors like you? Read on to find out more.
On the go? Here’s 30 seconds of key take outs:
- From 1 July 2017, how you can claim depreciation on residential property investment fixtures and fittings – ‘plant and equipment’ – has changed.
- Don’t panic. The changes may or may not affect you. For example, if you’ve bought a brand new residential construction, you’re not affected by the changes.
- You really should take the time to keep reading on and find out more!
Keep going >>
From 1 July 2017, the Government has limited plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties.
Plant and equipment items are the removable fixtures and fittings of a property such as air conditioners, carpets, blinds, ceiling fans and solar panels.
The changes included:
- Making plant and equipment depreciation deductions limited to outlays actually incurred by real estate property investors; and
- Property owners cannot claim deductions for Plant and Equipment purchased by a previous owner of the property.
The Australian Taxation Office’s (ATO) reference to the once commonly used term ‘depreciation’ is now referred to as Capital Allowance (Division 40) and Capital Works Write off (Division 43).
What do the plant and equipment depreciation deduction changes mean?
These changes means that if you purchased an investment property after the 9th of May 2017 that had at least one previous owner, you can’t claim depreciation on the existing plant and equipment items (Division 40 – Capital Allowances of the Income Tax Assessment Act 1997), unless you’ve gone and bought, say a new hot water service or oven after you’ve bought the property.
This change is significant as typically, depreciation of these fixtures and fitting would make up around half of the deductions in the first five years of depreciation (using the Diminishing Value Method).
The good news is that the Capital Works (Division 43) deductions were not affected by these changes.
Capital works relates to the main structure of the residential building (that is the substructure, bricks, framing, roof, tiles, joinery and other physical structures).
As long as your investment property was built after 1987, you can still claim capital works depreciation deductions on the original structure and any subsequent renovations – even if those renovations were completed by a previous owner.
Paying a qualified quantity surveyor is ALWAYS a good investment
A qualified quantity surveyor will provide you with estimates of capital works – building costs, as well as identify and cost out any previous renovations completed before you bought the property.
Typically, capital works makes up around 75-90% of the total construction cost of a house. For this reason, it is worthwhile to have a Tax Depreciation Schedule prepared.
Top 6 things you need to know about how the 2017 plant and equipment depreciation changes will affect you
- If you’ve purchased a brand new residential construction, you’re not affected by the changes to depreciation deductions on plant and equipment items.
- If you’ve purchased a commercial property, you are not affected by these changes.
- If you’ve bought a residential property after the 9th of May 2017, from a previous owner, you are affected by these changes. You can now only claim capital works related depreciation deductions.
- If you’ve bought a residential property after the 9th of May 2017, from a previous owner, and you’ve had to buy new fixtures and fittings, you’ll be able to claim depreciation deductions on any fixtures and fittings you’ve bought yourself.
- If you’ve bought a residential property before the 9th of May 2017, from a previous owner, you are not affected by these changes.
- If you’ve bought a pre-1987 residential investment property after the 9th of May 2017, you can only claim capital works deductions on renovation work, not on the original structures.
Stay calm! Our advice to property investors is to contact our resident team expert to find out whether these changes will affect you and what depreciation you can still claim.
Give us a bell on 02 9222 9444.
A big thank you to our depreciation expert Glenn Cartwright from Quanto who helped source some of this helpful information.
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