In honour of Back to the Future Day, we’re taking you on a radical journey through time to take a look at some of the key dates from 1985 which have impacted Australian history and influenced land ownership and property investment in this country right up until today.
I wonder what Marty McFly and Doc Brown would have thought if they arrived on October 21st 2015 after travelling from 1985 to find out how some of the decisions made in that year would affect the course of Australia’s history?
It’s Saturday, October 26, 1985 in Australia and Bob Hawke is the Australian Prime Minister.
This may have been the day in which Doc Brown first discovered his time machine could transport Einstein, Marty and himself to any time throughout history, but in Australia this was a date in which we paid recognition to some of the traditional owners of this land by handing back ownership of Uluru to the local Pitjantjatjara Aboriginals. Recognition of Australia’s traditional land owners continues be a very important part of our national discourse still today.
At the time when Doc first realised the invention of his time machine had been a success, Australia had only just recently introduced new tax legislation that would affect the ownership and sale of a rental property and the deductions which investors could claim.
On the 18th of July 1985, legislation was introduced which allowed property investors to claim capital works allowance on a residential property.
At the time of its introduction, investors were entitled to claim capital works deductions on the building structure at a rate of 4 per cent over twenty five years for any building in which construction commenced after this date. This legislation was later changed on the 15th of September 1987 and from this date onwards, investors could claim capital works deductions at a rate of 2.5 per cent for forty years.
While changes to depreciation legislation have meant that owners of properties in which construction commenced prior to the 15th of September 1987 may no longer be eligible for capital works deductions (the twenty five year period in which investors could claim the 4 per cent has now past), this does not necessarily mean that owners of properties constructed prior to this date will not benefit from depreciation.
In 2015, owners of both new and old investment properties still take advantage of depreciation.
Today we continue to see thousands of investors maximise depreciation deductions by obtaining a BMT Tax Depreciation Schedule and the numbers are growing. However, many owners of older properties in particular fail to maximise their deductions because they assume they are ineligible to claim depreciation.
While the above legislative rules apply, they don’t necessarily mean that there will be no depreciation available to claim. Older properties have often undergone renovations and any work completed within the legislated dates could entitle its owner to claim capital works deductions.
There are also significant deductions available for the plant and equipment assets contained within the property. It is the individual effective life and depreciable value which determines what an investor can claim for these items. It is as important now as ever before to make the call to find out what depreciation deductions are available for the future.
On the 20th of September 1985, the government introduced the Capital Gains Tax (CGT)
One of number of key tax reforms originally introduced by the Hawke/Keating Government in 1985, CGT is basically the tax payable on the difference between what it cost you to purchase an asset and the amount you receive when you dispose of it. In the case of an investment property, this is the difference between the original purchase price of the property including any capital buying costs and the price the property is sold for plus any selling costs. When you sell an asset such as a property, this triggers what is called a ‘CGT event’ and the owner will make a capital gain or loss on the property.
Legislation surrounding CGT changed significantly after the 21st of September 1999. From the 2000-2001 income year individuals or small business owners who held an investment property for more than twelve months from the signing date of the contract before selling the property were entitled to a 50 per cent exemption from CGT.
This rule, and other CGT exemptions that become relevant if a property is a primary place of residence, still exist today. An Accountant can help by providing financial advice for your future to prepare for any capital gains tax implications should you decide to sell your property.
1985 median house prices compared with 2015
According to data from Australian Bureau of Statistics, the average median house price across the capital cities in Australia during 1985 was $70,782. This was led by Canberra with an annual median house price of $90,625 and followed by Sydney with an annual median house price of $88,350. Perth was the capital city with the lowest annual median house price recorded at the time at just $52,050.
Fast forward in time to the Domain House Price Report released for the June 2015 quarter and prices have increased significantly. The national average median house price is now sitting at $701,827 with Sydney leading the way on house prices with a median of $1,000,616.
It’s Wednesday 21st October, 2015 in Australia and Malcolm Turnbull is the Australian Prime Minister
Based on the above increase in prices over time, it’s little wonder that housing affordability has become a hot topic for our government. What happens next, we’ll have to wait and see… that is, unless someone get’s a hold of a DeLorean and tells us where we will be thirty years from now…