New Legislation Impact on Residential Investment Properties

The new legislation passed on Wednesday, 15 November will impact property investors who purchased second hand residential properties where the contracts were exchanged after 7:30pm on 9 May 2017 (Budget night).

Under the new laws, residential investment property owners will be ineligible to claim depreciation on existing plant and equipment assets. This denies property investors from claiming income tax deductions for the decline in value of ‘previously used’ depreciating assets (plant and equipment) within residential investment properties.

There has been no change to the capital works deductions (this is the claim available for the structure of a building and fixtures and fittings such as doors, basins, toilets and retaining walls).

Here are some common questions in relation to the new changes.

What will happen to my existing residential investment property purchased prior to 7:30pm on Budget Night?

For investment properties purchased prior to 7:30pm on 9 May 2017 there are grandfathering provisions in place and therefore it is ‘business as usual’. This means property investors who had already made a purchase prior to the date can continue to claim depreciation deductions for pre-existing plant and equipment.

What if I purchase plant and equipment on my existing residential investment property after 1 July 2017?

From the 1st of July 2017, plant and equipment depreciation deductions are limited to only those outlays actually incurred by property investors so keep those receipts for tax time (as long as the property is still being rented or available for rent). Examples of plant and equipment include Airconditioners, Dishwashers, Smoke Alarms.

What if I purchase a new investment property?

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.

I am considering having my main residence that was purchased prior to 7:30pm on Budget Night becoming an investment property. Would I be able to use the grandfathering provisions on this property?

Under the new rules, you 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 and the owner decides to rent out the property after 1 July 2017.

Are you currently maximising your deductions on your rental property? If you have an Investment property and want to know whether you are maximising your deductions or want more information about how these new changes impact you, feel free to contact our office to arrange an appointment to discuss your taxation affairs.