» 2017 federal budget

Changes to rental property travel expenses

BMT team — Fri, 16 Nov 2018 00:35:01 +0000

Due to recent changes to legislation, property investors can no longer claim rental property travel expenses incurred while inspecting, maintaining or collecting rent from rental properties. New legislation was introduced from the 1st of July 2017 as part of the housing affordability measures, and affects Australia’s 2 million landlords, of which around 1.3 million are negatively geared. “This is an integrity measure to address concerns that many taxpayers have been claiming rental property travel expenses without correctly apportioning costs or have claimed travel costs that were for private travel purposes,” the budget papers say. In this article, we cover: Rental property travel expenses that now can’t be claimed Additional information you must know Rental property travel expenses that can no longer be claimed as a deduction preparing the property for new tenants (except for the first tenants) inspecting the property during or at the end of tenancy undertaking repairs, where those repairs are because of damage or wear and tear incurred while renting out the property maintaining the property, such as cleaning and gardening, while it is rented or genuinely available for rent collecting the rent visiting your agent to discuss your rental property. If you are an excluded class of entity or are carrying on a business for the purposes of gaining or producing assessable income, you are exempt from the new rules. The Australian Taxation Office (ATO) considers an ‘excluded class of entity’ as: a corporate tax entity a superannuation plan that is not a self-managed superannuation fund a public unit trust a managed investment trust a unit trust or a partnership, members of which are entities of a type listed above What you need to know You can still claim a deduction for the cost of employing other parties to carry out tasks on your behalf (such as Real Estate Agents for carrying out property management services such as inspections, or tradespeople for carrying out repairs) The denial of rental property travel expenses applies only to residential premises that are being used by the tenant as a place to live (i.e. property investors). It does not affect: residential premises that you own that are being used by the tenant for business purposes (for example, a house that has been re-fitted into a psychiatrist’s practice, doctor’s surgery, etc mixed-use premises (for example, where there is a convenience store downstairs and living quarters upstairs, but only for that part of the travel in relation to the convenience store) commercial premises (e.g. you are the landlord of a bakery or other commercial property) if you are in the ‘business of property’ as opposed to being a ‘property investor’. To read more about the new depreciation legislation and how this applies to a range of property investment scenarios, download our comprehensive white paper document – Essential facts: 2017 Budget changes and property depreciation visit bmtqs.com.au. Alternatively, for obligation free advice contact the expert team at BMT Tax Depreciation on 1300 728 726.

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BMT still finding an average of almost $9,000 in depreciation deductions

BMT team — Tue, 13 Nov 2018 02:34:54 +0000

Many of Australia’s property investors are still missing out on thousands of dollars in tax deductions each year by failing to maximise or claim depreciation for their rental investments. While changes to depreciation legislation introduced last year have impacted some investors, there are still thousands of dollars available to be claimed by property investors. Despite the changes, BMT Tax Depreciation are still finding clients an average of almost $9,000 legitimate tax deductions during the FY 2017/18 for residential properties. Furthermore, owners of properties directly affected by the legislation changes, i.e. second-hand residential properties where contracts were exchanged after 7:30pm on the 9th of May 2017, BMT were able to find an average claim of $5,651 per year for affected properties. What do the changes to legislation mean for property investors? This legislation has been grandfathered, which means if you exchanged contracts prior to 7:30pm on the 9th of May 2017 you will not be affected. However, for those who exchanged contracts on a second-hand residential property after 7:30pm on the 9th May 2017, you will no longer be eligible to claim depreciation deductions on previously used plant and equipment. What can still be depreciated? There are still several opportunities available to claim tax depreciation for investment properties. New houses are still eligible for deductions on plant and equipment, as are properties considered to be substantially renovated by the previous owner. Plant and equipment assets that have been installed and paid for by you will also continue to be tax depreciable. Other examples where you will still be able to claim deductions for plant and equipment include: Deductions that happen in the course of carrying out a business Deductions for a property held by public unit trusts and managed investment trusts Where the property is held by a corporate tax entity. All property investors can continue to claim depreciation for qualifying capital works. This is considered to be the building’s structure and any permanently fixed assets such as the walls, roof, doors, tiles and toilets. These deductions make up 85-90 per cent of a total depreciation claim. Still unsure what these changes will look like for you? It is essential for property investors to always seek expert guidance on what they can claim to ensure they are not missing out on valuable deductions and risk getting it wrong. If you would like further information on how these changes may impact you and how simple it is to reap the maximum reward from your investment property, contact us on 1300 728 726 . Alternatively, request a quote and discover how we can help you to find and maximise legitimate tax deductions from your investment property and ultimately increase your cash flow.

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What can I claim on my second-hand property?

BMT team — Wed, 04 Jul 2018 06:35:24 +0000

As a result of changes to property depreciation legislation in November 2017, there’s been much confusion by property investors as to what they could claim on their second-hand properties. There’s a misconception that lucrative depreciation deductions can no longer be claimed for second-hand properties. In fact, investors can still claim around 85 to 90 per cent of the deductions that they could prior to the budget changes taking effect. So what exactly do the changes mean for second-hand properties? On Wednesday 15th November 2017, Parliament passed the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 in what was the biggest change to property depreciation legislation in over 15 years. The legislation stated that owners of second-hand residential properties could no longer claim depreciation for existing plant and equipment assets if contracts were exchanged after the 9th of May 2017 at 7:30pm. Plant and equipment, or division 40 assets, are those not considered part of the property’s structure and can be easily removed. This includes anything from the oven, rangehood, dishwasher and smoke alarms down to carpets, garbage bins and shower curtains. If you exchanged contracts on a second-hand property after the 9th of May 2017 at 7:30pm and purchased new plant and equipment assets, you can claim depreciation. The legislation only governs existing assets that were in the property at the time of purchase. Investors who purchased a second-hand property before the cut-off date are exempt from the legislation changes and can continue claiming as before. The legislation however, made no changes to the more profitable depreciation category of capital works, or division 43. Capital works deductions make up 85 to 90 per cent of depreciation claims and relate to the building structure and permanent fixtures. This includes things such as the foundations, walls and floors as well as windows, toilets and sinks. The deduction is available on residential investment properties that commenced construction after the 15th of September 1987. It can be claimed at a rate of 2.5 per cent for up to forty years. If you purchased a property that was constructed prior to 1987, it’s advisable to still contact us as we can research if any renovations have taken place on the property. You may be eligible to claim these renovations as a deduction. Second-hand property owners are eligible to claim depreciation on capital works carried out by themselves and by the previous owner. In the FY 2018-19, we found our clients an average of almost $9,000 in first-year tax deductions for all residential properties. For clients with properties directly affected by the legislation changes, we still found an average of $5,641 in deductions per year. It’s more important than ever to work with a specialist quantity surveyor to ensure that all deductions are identified and claimed correctly under the new legislation.

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How recent changes to depreciation legislation will impact investors

BMT team — Wed, 06 Dec 2017 04:03:29 +0000

On Tuesday the 9th of May 2017 the government proposed changes to the depreciation of plant and equipment assets in the federal budget. These proposed changes were passed by the Senate on the 15th of November 2017. Shortly after these changes were proposed and following their legislation, a number of property investors contacted BMT Tax Depreciation to discuss how they might be affected. Understandably so, as the last major changes to depreciation legislation were made by the government in the mid 1980’s. The main concerns investors had were about the impact the changes would have on their existing arrangements, future purchases and more widely on the property market. The good news for investors is that properties purchased prior to 7:30pm on the 9th of May 2017 are unaffected, as the previously existing depreciation legislation has been grandfathered. This means that any investor who exchanged contracts prior to this date can continue to claim depreciation deductions as per before. The changes outlined in legislation section two of Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 remove a subsequent owner’s ability to claim a depreciation deduction for previously used plant and equipment assets (the easily removable or mechanical fixtures and fittings) in properties which exchanged contracts after the 9th of May 2017. The legislation also confirms that the proposed changes will only apply to second-hand residential properties. Any investor who purchases a brand new property can continue to claim depreciation for plant and equipment as normal. The changes won’t affect an investor’s ability to claim the capital works component (deductions available for the wear and tear of the building structure and fixed items). Depreciation of plant and equipment for non-residential/commercial properties is also unaffected. The legislation also states that amendments to deductions for plant and equipment assets held in residential properties will not affect those carrying on a business, corporate tax entities, superannuation plans (other than Self-Managed Super Funds) and those who hold a property in a large unit trust. Properties which have been lived in and turned into an investment property by their owners prior to the 1st of July 2017 are not affected. Owners can continue to claim plant and equipment depreciation and capital works deductions. A property owner will not be able to claim depreciation on pre-existing plant and equipment assets within properties which have been lived in as a primary place of residence where the owner decides to rent the property out after the 1st of July 2017. Plant and equipment assets within this scenario are considered previously used. There are scenarios where the values of plant and equipment will be needed. This includes when an asset is scrapped, where there is a partial or full CGT exemption and where the exchange date and settlement date on the sale of the property occur in separate financial years. Depending on the circumstances, a property investor who is unable to claim depreciation on previously used plant and equipment assets due to these amendments should be able to claim a capital loss for the decline in value of the plant and equipment assets. This capital loss should only be able to offset a capital gain and if needed can be carried forward to offset future capital gains. Case study The below scenario explains in detail how depreciation plays a role in assisting a residential property investor to improve the cash return from their property. It also compares the depreciation deductions for the first full financial year on a three year old house purchased for $600,000 before and after the 9th of May 2017. In the example, the owner receives a rental income of $560 per week or a total income of $29,120. Expenses for the property, such as interest, council rates, property management fees, insurance and repairs and maintenance total $41,028. In the first scenario, the owner is able to claim a total depreciation claim of $12,397 from both capital works deductions and plant and equipment depreciation. Using depreciation, this investor is experiencing a weekly cost of $56 per week to hold the property. In the second scenario, as the owner exchanged contracts on the property after the 9th of May 2017, they are only able to claim $6,126 in capital works deductions and will be unable to claim $6,271 in plant and equipment deductions. This reduced claim would result in the investors weekly cost of holding the investment property increasing from $56 to $101, a difference of $45 per week or $2,340 in the first full financial year. It’s important to note that the change will have the same effect on both positive and negative cash flow scenarios. While we believe that generally the integrity measure has merit, the legislative changes go much further than what was necessary to deliver on the government’s intention of stopping subsequent owners from claiming deductions in excess of an asset’s value. The approach outlined in the legislation treats residential property investors differently by extinguishing a property investor’s ability to claim a deductions based upon a transaction. We believe this is caused by gaps in current legislation around establishing a depreciable value for second-hand plant and equipment. It’s more important than ever to work with a specialist Quantity Surveyor to ensure that all deductions are identified and claimed correctly under the new legislation. Each and every BMT Tax Depreciation Schedule will be tailored to suit an individual’s property investment scenario, ensuring that all deductions are maximised.

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New depreciation legislation for Australian property investors

BMT team — Fri, 17 Nov 2017 01:13:39 +0000

In one of the most dramatic changes to property depreciation legislation in more than 15 years, Parliament has passed the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 as at Wednesday 15th November 2017, with the Bill now legislation. Watch the short video below to learn about the key points of this new legislation. The new legislation means owners of second-hand residential properties (where contracts exchanged after 7:30pm on the 9th of May 2017) will be ineligible to claim depreciation on plant and equipment assets, such as air conditioning units, solar panels or carpet. This includes new property that was purchased after this date where the owner lived in it before renting it out. The good news is that there are still thousands of dollars to be claimed by Australian property investors, as there has been no change to capital works deductions, a claim available for the structure of a building and fixed assets such as doors, basins, windows or retaining walls. These deductions typically make up between 85 to 90 per cent of an investor’s total claimable amount. Previously existing depreciation legislation will be grandfathered, which means investors who already made a purchase prior to this date can continue to claim depreciation deductions as per before. Investors who purchase brand new residential properties and commercial owners or tenants, who use their property for the purposes of carrying on a business, are also unaffected. Owners of second-hand properties who exchanged after 7:30pm on the 9th of May 2017 will still be able to claim depreciation for plant and equipment assets they purchase and directly incur an expense on. It’s more important than ever to work with a specialist Quantity Surveyor to ensure that all deductions are identified and claimed correctly under the new legislation. Each and every BMT Tax Depreciation Schedule will be tailored to suit an individual’s property investment scenario, ensuring that all deductions are maximised. For investors who are planning on selling a property affected by the new rules, a BMT Tax Depreciation Schedule can be provided to assist them and their Accountant to perform a calculation adjustment for CGT liabilities. For further information on any property investment scenario, speak with one of the expert staff at BMT Tax Depreciation on 1300 728 726. Find out more about the new depreciation legislation by downloading our white paper here: Essential facts: 2017 Budget changes and property depreciation.

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Treasury Laws Amendment Bill to impact property investors

BMT team — Wed, 13 Sep 2017 23:39:10 +0000

Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 was introduced into parliament on the 7th of September 2017 and included legislation changes which will negatively affect residential property investors across Australia. Announced in the 2017 Federal Budget, the amendment denies tax deductions for the decline in value of ‘previously used’ or ‘second hand depreciating assets’ (plant and equipment) found within residential investment properties. The new legislation will limit plant and equipment depreciation deductions to only those outlays actually incurred by investors in residential properties and those who purchase brand new investment properties. “This change will have a major impact on investors, essentially reducing the annual deductions they can claim which in turn, reduces their cash return each year,” said Chief Executive Officer of BMT Tax Depreciation, Bradley Beer. “This could lead to investors being in a tighter financial position and may discourage investors from purchasing second hand residential properties in the future. “These amendments will cause a financial disadvantage for property investors. The vast majority of whom are typical mum and dads, police, nurses and teachers who own one investment property. We will be treating them differently to investors in other asset classes. “A transaction of a property between two parties will now extinguish the ability to claim legitimate deductions,” Mr Beer explained. From July 1 this year, the depreciation of acquired second hand or previously used plant and equipment assets will be reflected in the cost base for capital gains tax purposes. Existing investments will be grandfathered. Property owners who exchanged contracts to purchase their property before the 9th of May 2017 can continue to claim a deduction for depreciation on the plant and equipment items within the property until either the investor no longer owns the asset, or the asset reaches the end of its effective life. The Draft Bill went to public consultation in August which saw the public and key stakeholders voice concerns about the severity of the changes and the negative effect on housing affordability. There were also proposals outlining alternative options (put forward by industry stakeholders) which were designed to satisfy the integrity issue of claims being made in excess of an assets value without extinguishing a legitimate deduction for property investors. Notwithstanding the consultation process and suggestions from the public, industry and key stakeholders, the government continued with the proposed amendments outlined in the Draft Bill. “There are much simpler and fairer ways to address the integrity issue raised and BMT has put these options forward to Treasury,” said Mr Beer. Legislation now needs to be debated and passed by both houses of parliament before it becomes law. “We can only hope that the senate opposes this policy,” said Mr Beer. “Our data demonstrates that the average depreciation deduction claimed for plant and equipment assets on a typical three year old residential property, purchased for $600,000, is $21,178 for the first five years. “The changes will result in an average loss of $4,236 in deductions per year to property investors. Based on a marginal tax rate of 37 per cent, an increase of $47 per week in rental income would be required to counter balance this reduction. “The good news is that investors who purchase brand new properties or new plant and equipment assets for a residential investment property can continue to claim a depreciation deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim the deduction for depreciation of plant and equipment assets,” said Mr Beer. The capital works deduction, which makes up 85 to 90 per cent of the total depreciation claim for residential investors will not be affected. “Residential property investors will still be able to claim capital works deductions, also known as building write-off, including any additional capital works carried out by a previous owner,” said Mr Beer. “These changes make it as important as ever for property investors to utilise Quantity Surveyors to find and correctly claim, every single deduction they are entitled to,” said Mr Beer.

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Draft legislation: understanding the proposed changes

BMT team — Thu, 27 Jul 2017 00:37:25 +0000

This month, the government released draft legislation regarding the proposed changes to plant and equipment depreciation as announced in the May federal budget. The draft outlined further details around a property investor’s eligibility to claim depreciation and provided a range of scenarios to be aware of should this legislation pass. In a positive move, the government provided the public with an opportunity to have their say on the new measures. A public consultation period, which was open until the 10th of August 2017, has now closed. While these measures are yet to be legislated, we have taken a proactive approach in reviewing how these intended changes could impact investors. Following is an in-depth look at the possible outcomes. Limiting depreciation on second-hand assets Section two of Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 advises that the Bill intends to amend the Income Tax Assessment Act 1997 (ITAA 1997) to limit deductions for plant and equipment in residential premises. In essence, the proposed new law reduces the amount an investor can deduct for a previously used depreciating asset for the purpose of gaining or producing assessable income. Should the proposed legislation be passed, this means that residential property investors won’t be able to claim depreciation for plant and equipment assets found in second-hand properties in which contracts exchanged after 7:30pm on the 9th of May 2017. Investors can learn more about the proposed changes, who is affected and what they mean by visiting our blog post, ‘What do the proposed changes to depreciation mean for you?’ Capital gains tax changes and implications The draft legislation outlines some detail around a reduced Capital Gains Tax (CGT) liability for property investors. Any property investor who is unable to claim depreciation on previously used plant and equipment due to these amendments will be able to claim a capital loss for the decline in value of the plant and equipment assets. This capital loss will only be able to offset a capital gain and if needed can be carried forward to offset future capital gains. A value that relates to the previously used depreciation assets will need to be established at the time of purchase. A decline in value will then need to be calculated for the assets so that a termination value can be determined at the time the property is sold. The difference between the value at the time of purchase and the termination value will be the capital loss which will reduce the owner’s CGT liability. How will the changes affect an investor’s cash return? The following scenario compares the cash return an investor will receive for a three year old house purchased for $600,000 both before and after the proposed new measures. In the example, the owner receives a rental income of $560 per week or a total income of $29,120. Expenses for the property, such as interest, council rates, property management fees, insurance and repairs and maintenance total $41,028. In scenario one, the owner is able to claim a total depreciation claim of $12,397 for both capital works deductions and plant and equipment depreciation. Using depreciation, this investor will experience a weekly cost of $56 per week to hold the property. In the second scenario, as the owner exchanged contracts on the property after 7:30pm on the 9th of May 2017, they are only able to claim $6,126 in capital works deductions and will be unable to claim $6,271 in plant and equipment deductions. This reduced claim would result in the investors weekly cost of holding the investment property increasing from $56 to $101, a difference of $45 per week or $2,340 in the first full financial year. As you can see, the proposed changes will limit the depreciation deductions available to property investors, which will lead to a cash flow reduction each year. BMT believes that while generally the integrity measure has merit, the proposed changes go much further than what is necessary to deliver on the Government’s intention of stopping subsequent owners from claiming deductions in excess of an assets value. The approach proposed in the draft legislation treats residential property investors differently by extinguishing a property investor’s ability to claim a deductions based upon a transaction. We believe this is caused by gaps in current legislation around establishing a depreciable value for second-hand plant and equipment. Property investors who would like more information can speak with one of our expert staff by contacting their local office.

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Investors can now have their say on proposed depreciation changes

BMT team — Wed, 19 Jul 2017 02:27:53 +0000

In breaking news, the Australian Government has released draft legislation for public consultation that provides property investors with the opportunity to have their say around proposed changes to depreciation deductions that were announced in this year’s Federal Budget. According to Bradley Beer, the Chief Executive Officer of BMT Tax Depreciation, the integrity measures in the exposure draft released by the government provide further clarification for property investors around the proposed new rules and investors would be wise to closely review the documents and/or speak to a qualified expert before purchasing an investment property. In the exposure draft, Treasury Laws Amendment (Housing Tax Integrity) Bill 2017: Limiting deductions for plant and equipment in residential premises and travel expenditure for residential rental property, many questions which were left unanswered by investors have now been addressed. The Bill suggests that investors who purchase new properties and complete substantial renovations or purchase a property off the plan, will not be affected by the changes. However, and as foreshadowed, investors who have purchased second hand residential properties after the 9th May 2017 will only be able to claim depreciation for plant and equipment assets that they spend money on themselves. In the past, this group has been able to depreciate such assets in properties they purchased regardless of whether they paid for them or not. “While the Government’s intention has merit, BMT believes that this change may unfairly prejudice investors of second hand properties,” said Mr Beer. “BMT encourages people in this group to review the legislation and have their say through the appropriate channel,” said Mr Beer. The Government also advises that amendments to deductions for plant and equipment assets held in residential properties will not affect those carrying on a business, corporate tax entities and those who hold a property in a large unit trust. “This means that those who operate a business from home will still be able to continue claiming plant and equipment depreciation on assets which are used to produce an income for the business,” said Mr Beer. “Owners of second hand residential properties will still be able to claim a capital works deduction for the structural element of a building including fixed assets, if the building was constructed after 1987.” “This capital works deduction makes up the largest part of a property investor’s depreciation claim,” said Mr Beer. All investors who exchanged properties before 7:30pm on the 9th of May this year will still be able to claim depreciation as normal. Public consultation regarding the new measures for plant and equipment depreciation, and changes to claims for travel expenditure, is open until the 10th of August 2017 for property investors who would like to have their say.

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What do the proposed changes to depreciation mean for you?

BMT team — Wed, 31 May 2017 07:14:35 +0000

Recently the federal government announced some proposed changes relating to plant and equipment deductions. Since then we’ve had time to review how this could affect residential property investors. Although we are not expecting the legislation to be finalised anytime soon, we have been talking with government with the aim of developing fair policy which covers all the necessary factors. Many investors who have contacted us have asked how they will be affected. The proposed changes won’t have any effect on properties that are already owned. It will only affect owners who have exchanged contracts on an investment property after the 9th of May 2017. Below are the key points to answer the questions investors have relating to the proposed changes. Because the legislation is yet to be finalised, it is important to note that further changes may still take place. Contents: What changes have been proposed? What is plant and equipment? When will the changes take place? Who will be affected by this change? How will these investors be affected? Who won’t be affected by these proposed changes? Depreciation scenario – before and after 9th of May What changes have been proposed? Subsequent owners (those who purchase a second hand property) who exchange contracts after the 9th of May 2017 will not be able to claim depreciation on existing plant and equipment assets Although there is nothing specific mentioned about new properties, we expect that investors will be able to depreciate new plant and equipment assets within a new property as they have been previously. This will continue as normal Any additional assets added to a property can be depreciated as normal. Investors will still be eligible to claim qualifying capital works deductions, which are the deductions available on the structure of the building. This includes any additional capital works carried out by themselves or a previous owner. The capital works deduction is available on properties that commenced construction after the 16th of September 1987 The budget notes advise that existing investments will be grandfathered. This means that any investor who exchanged contracts prior to the 9th of May 2017 can still claim plant and equipment depreciation per normal What is plant and equipment? These are the easily removable or mechanical assets found within an investment property Some examples include air conditioners, hot water systems, smoke alarms, garbage bins, blinds and curtains The Australian Taxation Office provides individual effective lives for plant and equipment which can be used to calculate the rate of depreciation over time When will the changes take place? The proposed new legislation was expected to be passed from the 1st of July 2017. However, the legislation is yet to be passed and the government has provided investors and relevant parties with the opportunity to have their say by making a submission until the 10th of August 2017. Who will be affected by this change? Property investors who exchanged contracts to purchase a second hand residential property after 7:30pm on the 9th of May 2017 How will these investors be affected? These investors will only be able to claim plant and equipment depreciation on the assets they purchase and add to the property themselves Investors who purchase a second hand property should still contact a specialist Quantity Surveyor to discuss the deductions they can claim for qualifying capital works deductions Who won’t be affected by these proposed changes? Owners of brand new residential properties who exchanged contracts both before and after the 9th of May Residential property investors who exchanged contracts prior to the 9th of May 2017 The amendments don’t affect deductions that arise in the course of carrying on a business. This means commercial property owners and their tenants can continue to use the existing rules. Corporate tax entities, superannuation plans (other than Self-managed Super Funds) and large unit trusts are also unaffected Home owners are unaffected as only income producing properties will be impacted. Clarity is needed around those who decide to turn their primary place of residence into an investment property, especially those who purchase their property prior to the 9th of May 2017 and they decide later to rent it out Depreciation scenario – before and after 9th of May The following tables show the deductions an investor would receive for both a three year old and a ten year old residential property purchased for $600,000. They examine the deductions an investor who exchanged contracts prior to the 9th of May could claim compared with the likely depreciation deductions they could claim if they exchanged contracts after the 9th of May under the proposed new legislation.

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Property investors to lose out from proposed budget changes

BMT team — Thu, 11 May 2017 06:23:46 +0000

The 2017 Federal Budget, handed down by Treasurer Scott Morrison on Tuesday night, 9th May at 7:30pm AEST includes proposed changes which will affect residential property investors Australia-wide. The Australian Tax Office (ATO) allows owners of income producing property to claim depreciation deductions for the wear and tear that occurs to a building’s structure and the plant and equipment assets within. The proposed changes relate to the depreciation of plant and equipment assets and the eligibility to claim this deduction. Currently, investors are eligible to claim qualifying plant and equipment depreciation on assets found in an investment property they purchase, even if they were installed by a previous owner. “Under the new rules which are yet to be legislated by Parliament, investors will be able to depreciate new plant and equipment assets and items they add to their property, however subsequent owners will not be able to claim depreciation on existing plant and equipment assets,” said the Chief Executive Officer of BMT Tax Depreciation, Bradley Beer. “This change will have a major impact on investors, essentially reducing the annual deductions they can claim therefore reducing their cash return each year. This could lead to investors being in a tighter financial position and may discourage future investors from purchasing a second hand residential property,” said Mr Beer. “It is our understanding at this stage that if the property is new, they will be able to continue to depreciate plant and equipment as they were previously. We are seeking further clarification on this,” said Mr Beer. Investors will still be able to claim capital works deductions also known as building write off, including any additional capital works carried out by a previous owner. The budget notes were clear that existing investments will be grandfathered. This means that anyone who has purchased a property up until the 9th of May 2017 will be able to claim depreciation as per normal. If a property investor exchanges contracts to purchase a second hand property after 7:30pm on the 9th May, there could be different depreciation rules applicable to their scenario. “We are currently speaking with government to further understand the intricacies relating to the budget notes and the proposed changes to depreciation of plant and equipment assets,” said Mr Beer. This article was originally published as a media release at www.bmtqs.com.au/news-media/media-releases/property-investors-lose-out-budget-changes

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