Legislation for Property Depreciation Tightens
Depreciation for Property Investors
Over 2 million Australians own property for investment. We know it can be lucrative, but do you know about property depreciation?
What is Depreciation?
If you’re new to property investment, you may not know much about depreciation. Depreciation is the wear and tear over the life of the property. For tax purposes, depreciation is a deduction for the wear and tear that you claim over the life of the property, rather than a one-time expense deduction. This deduction can affect your cash flow, so you need to know as much as possible about it.
Before you purchase property, it’s a good idea to get a depreciation schedule – a list of all claimable deductions on your property, the value of each, how long they’re expected to last, and a projection of how much you can deduct each year. For example, you can depreciate the building itself and a refrigerator. But those depreciate at different rates because the useful lives are different. You can get a depreciation schedule from an experienced Quantity Surveyor.
What Legislation Changed?
Last year, Parliament made some changes to property investment legislation for depreciation that begin in 2018. The main change is that new owners of second-hand residential properties can no longer claim certain assets if they purchased the property after 9 May, 2017. New investors cannot claim depreciation on second-hand plant and equipment assets, including solar panels, carpet, and air conditioning units.
This new legislation only affects new investors of second-hand property. So if you purchase the assets new, or if you purchased a second-hand asset before 9 May, 2017, you can still depreciate it.
Am I Affected?
Now that you know what changed, you probably want to know if your property is affected. See below for some guidelines:
– Only residential investment property is affected. If you own only commercial property, there are no changes.
– The legislation applies to individuals and personal structures (such as self-managed superannuation funds). If your property is owned by a company or large corporate investment trust, there are no changes.
– If you owned the property before 9 May, 2017, the depreciation is not affected, even if you haven’t taken the allowed depreciation in an earlier year.
– The new legislation only applies to used or second-hand assets. If you purchase new (not previously owned) property after 9 May, 2017, your property depreciation is not affected.
Still not sure if these changes impact you or what needs to be done?
Get in touch and we will be happy to help!