» Federal Budget 2017

Do the depreciation legislation changes affect me?

BMT team — Tue, 25 Sep 2018 01:23:52 +0000

On 15 November 2017, Parliament passed the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017, which brought about some major changes to ‘plant and equipment’ depreciation claims. Plant and equipment depreciation refers to the deductions an investor can claim for the wear and tear that occurs to the fixtures and fittings located within a property. They are referred to as assets, which are considered by the Australian Taxation Office (ATO) to be easily removed from the property. Investors can claim depreciation deductions for more than 6,000 different ATO recognised assets, such as the carpets, blinds, dishwashers, hot water systems, smoke alarms and ceiling fans. Each of these assets is assigned an individual effective lifespan and depreciation rate by which depreciation of the asset is calculated. The depreciation rates and effective lives of all ATO specified plant and equipment assets differ by each individual asset and even by individual industries. The ATO recognises that plant and equipment items will wear out more quickly than the building itself and will likely need replacing sooner. The legislation changes mean that owners of second-hand residential properties (where contracts exchanged after 7:30pm on 9 May 2017) can longer claim depreciation on existing plant and equipment assets located within their property. However, owners of affected properties can still claim depreciation on the ‘plant and equipment’ assets they purchase for their property directly. It is important to note that there are still thousands of dollars to be claimed by Australian property investors, as there has been no change to ‘capital works’ deductions, or building write-offs, which typically make up between 85 to 90 per cent of an investor’s total claimable amount. Investors who have already purchased prior to this date can continue to claim depreciation deductions as before. 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. BMT Tax Depreciation will show you how to claim more deductions, pay less tax and see a greater return on your investments. BMT Tax Depreciation schedules are designed specifically for ease of use by Accountants to incorporate depreciation deductions into an investors’ income tax assessment. All information is prepared in full compliance with ATO regulations, meaning that deductions are detailed and evidenced correctly in the event of an audit. Alternatively, you can contact one of our expert staff on 1300 728 726 for a free estimate of available deductions. Find out more about the 2017 depreciation legislation and how this applies to a range of property investment scenarios.

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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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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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