Depreciation changes proposed for residential property investors
Under new rules, investors who acquire a property after 9th of May 2017 will not be able to claim depreciation on existing plant and equipment assets.
Plant and equipment assets are usually items that can be easily removed from a property without damage. For example a dishwasher, curtains, air conditioner or an oven. This was proposed by the Federal Government in the 2017 Budget, but it is yet to be legislated by Parliament. This integrity measure was brought about due to concerns that some plant and equipment items are being depreciated by investors in excess of their actual value according to the Budget paper.
The Government expects the changes on plant and equipment depreciation deductions will add $260 million to the budget bottom line.
Good news however for investors who have purchased a property up until the 9th of May 2017 as they will still be able to claim depreciation on plant and equipment assets for both new and second-hand properties as per usual until the values either run out or the property is sold.
The new legislation will be in force from 1st of July 2017.
Currently, investors are able to claim qualifying plant and equipment depreciation on assets in their investment property they purchase, even if they were installed by a previous owner.
Based on these proposed changes, it means the only ways an investor will be able to claim depreciation deductions on plant and equipment items is if they add the plant and equipment items directly themselves or if investors buy a brand new residential property.
According to BMT Chief Executive, Bradley Beer, the proposed policy change to deductions will essentially reduce the annual deductions an investor can claim and will thus reduce their cash return each year. This could potentially discourage investors from purchasing a second hand residential property. In the long term this could lead to property investors leaving the property market, which could lead to a lack of supply of affordable rental properties Australia wide, which could further cause upward pressure on rental prices due to demand.