Changes to Investment property tax deductions affecting the Tax returns for 2017-18 FY:
In the 2017 Federal Budget, new measures were announced in regards to changes on how depreciation can be claimed on residential properties as well as the removal of claiming travel expenses for trips taken to visit and inspect your investment property (ies).
For investors, these changes may cost thousands of dollars and make a huge impact on your individual tax returns as well as change any future investment plans that you may have.
What are the changes in depreciation?
The changes will mean that from the 1st of July 2017, you will not be able to claim a depreciation deduction on previously used/owned plant and equipment in a residential property. You will only be able to claim depreciation on plant and equipment if it was purchased new or if it came with the property when buying the property brand new.
Previously, depreciation for Plant and Equipment assets were calculated based on their individual values and effective life in order to come up with the expense claimable for each financial year of holding the property. The changes will mean that these expenses will not be claimable anymore unless the asset has been purchased brand new or the investors had paid for it themselves.
For example, an apartment in the Melbourne CBD purchased in 2016 for 900k may have a Plant and Equipment depreciation amount of $6000 and a depreciation of $12,000 for the Building itself allowing you to claim $18,000 as a depreciation expense. With the changes in the rule, it will mean that only $12,000 can be claimed as a depreciation expense.
What falls under Plant and Equipment or a Division 40 asset?
Plant and Equipment are generally mechanical fixtures or items that can be ‘easily’ removed such as ovens, blinds, carpets, kitchen appliances and ceiling fans etc.
Who will be affected by the depreciation change?
The change will affect investors who have purchased (contract exchange date) an established residential property after 730pm 9th May 2017.
Who will not be affected by the depreciation change?
- If you had purchased your investment property brand new as the first owner then the change will not affect you.
- If you are an existing property owner or have purchased an established residential property before 730pm 9th May 2017.
- If you had previously lived in it as your main place of residence, then have changed it to an investment property, then the change will not affect you.
- If you only own commercial investment properties
These investors will still be able to claim depreciation for plant and equipment as per what they were doing previously and for investors who do not have a depreciation schedule and will be getting one in the future, their depreciation schedule will be prepared based on the legislation that was in place when they first purchased the property.
Travel expense changes
Previously investors were able to claim as a deduction, expenses in relation to the travel to inspect, for maintenance or collecting rent from their investment properties, these included the cost of airfares, accommodations and car hire.
From 9th May 2017, these expenses will not be claimable as a deduction anymore nor will it be recognised in the cost base of the property when calculating Capital Gains Tax.
From the change, the only travel expense that can still be claimed as a deduction will be if you are carrying on a business, for the purpose of producing assessable income, or if you are an excluded class of entity.
Excluded class of entity is:
- Corporate tax entity
- Superannuation plan that is not a SMSF
- Public unit trust
- Management investment trust
- Unit trust or a partnership
Although this will reduce down the expenses that you can claim, we at A One Accountants have prepared countless numbers of investment property tax returns and have a thorough understanding of claimable deductions to ensure we claim everything that you are eligible for. A common mistake seen in many investment property tax returns is that people aren’t aware of everything they can claim and hence they may not be paying/receiving the correct amount of tax. Give us a call on 03 8609 1889 or send us an email on firstname.lastname@example.org and one of our friendly staff will be in contact with you to assist you.