July 2004 Changes in Legislation
Key points:
- Australian Taxation Office has reviewed the classification
and effective life of assets typically found in residential
properties.
- Changes are applicable to property owners who exchange
on a residential property after 1 July 2004.
- All items previously allowed are still claimable, the
classification of various depreciable items has changed
(Division 40/Division 43).
- In effect some items are no longer depreciable, but are
classified as claimable under the appropriate (Division
40/Division 43) classification.
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The Australian Taxation Office has recently drafted an effective
life review of residential property assets, which became effective
1 July 2004. The changes alter the classification of various depreciable
items, whilst all previously allowed items are still claimable,
certain items are proposed to be re-calculated under a different
classification, therefore, at a new rate or a new effective life.
The changes are applicable to property owners who exchange on residential
property after 1 July 2004. It applies to owners of residential
properties (such as houses, flats and units). The changes do not
apply to commercial, industrial and retail properties, however a
reference to future changes has been made.
The changes are not retrospective, old reports prepared by BMT
& ASSOC do not need to be amended, the ATO has made the following
comment regarding this issue:
The Tax Office does not intend to use the new determination of
effective lives as the basis of any audit activity on prior year
rental property claims.
However, where the Tax Office becomes aware of blatant cases of
over claiming of deductions based on the incorrect categorisation
of assets, then we may adjust a taxpayer's prior year returns.
For example, a comparison of the previous classification and the
revised classification:
Item: Floating Timber Floor
Previous Classification: Division 43, 40
year effective life, 2.5% depreciation rate
Revised Classification: Division 40, 15 year
effective life, 10% Diminishing Value or 6.7% Prime Cost depreciation
rate.
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Item: Light Fitting - hardwired
Previous Classification: Division 40, 20
year effective life, 7.5% Diminishing Value or 5% Prime Cost
depreciation rate.
Revised Classification: Division 43, 40 year
effective life, 2.5% depreciation rate.
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Note: Division 43 - Building Write Off Allowance,
Division 40 - Plant & Equipment items based on effective
life.
Furthermore to the revised classification changes, various Division
40 items, such as air conditioning units and kitchen appliances,
have retained their classification, but the effective life has been
adjusted.
Examples:
Examples of tax depreciation allowances for a typical house and
unit before and after tax depreciation legislation changes 1 July
2004.
Typical House: $400,000 purchase price.
| Financial Year |
Previous |
Current |
Financial Year |
Previous |
Current |
| 1 |
11,027 |
10,405 |
6 |
7,509 |
7,452 |
|
2 |
12,151 |
10,781 |
7 |
6,789 |
7,257 |
|
3 |
10,081 |
9,509 |
8 |
6,298 |
6,571 |
|
4 |
9,115 |
8,416 |
9 |
5,958 |
6,110 |
|
5 |
8,086 |
7,566 |
10 |
6,012 |
5,797 |
|
|
|
Total (10 years) |
83,026 |
79,864 |
5 year Difference: -$3,783 %
Difference 5 years: -7.5%
10 year Difference: -$3,162 %
Difference 10 years: -3.8%
Typical Unit: $400,000 purchase price (40 unit
development).
| Financial Year |
Previous |
Current |
Financial Year |
Previous |
Current |
|
1 |
13,482 |
11,263 |
6 |
6,976 |
6,847 |
|
2 |
11,937 |
10,587 |
7 |
6,467 |
6,832 |
|
3 |
9,847 |
8,979 |
8 |
6,121 |
6,276 |
|
4 |
8,604 |
7,966 |
9 |
5,874 |
5,909 |
|
5 |
7,732 |
7,191 |
10 |
5,992 |
5,663 |
|
|
|
Total (10 years) |
83,032 |
77,513 |
5 year Difference: -$5,616 %
Difference 5 years: -10.9%
10 year Difference: -$5,519 %
Difference 10 years: -6.6%
For further advice on property tax depreciation please contact
BMT & ASSOC Quantity Surveyors on 1300 728 726 for an Australia
Wide Service.
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