Will Investors Really Lose Thousands In Tax Saving?
There was a bill passed on November 15, 2017, which will affect many Australians who have purchased or thinking of buying a rental property. It is now more important to make sure you can pay all ongoing costs when purchasing a property.
The new legislation means that second-hand residential property owners, where contracts are signed from May 9, 2017, 7:30pm, may no longer be eligible to claim depreciation on some assets. This means an average loss of about $4,200 a year in depreciation-related deductions over the first five years of ownership. Investors are no longer eligible to claim depreciation for plant and equipment assets, including blinds, ovens, security systems, air conditioning units, etc. in second-hand homes.
Note that there is no change to capital works rules, which allow property owners to claim a percentage of their construction costs, including buildings or extensions, improvements or alterations to the building or fences, walls and driveways. It typically makes up about 90% of an investors' total claimable amount.
The question is, how can you claim for the costs of your second-hand property? A paid depreciation report with a list of all the claimable plant and equipmen. It specifies the value of the items and calculates depreciation.
Investors who bought properties before May 9th, 2017, 7:30pm and those who bought a brand new residential property or new or second-hand commercial property can still claim depreciation deductions just like before.
Those who bought a second-hand residential property after such time can only claim depreciation for assets they buy and directly incur expenses on. It may not be that bad though because those who received the cashflow of plant and depreciation deductions will still have to add back the depreciation claimed when they sell the property anyway, effectively increasing their capital gains.