Reliable Bookkeeping Services are going to dig deep into some of the common questions being asked since the 9th of May 2017, when the changes were announced in the Federal Budget. The dust has finally settled on the new legislation to the budget changes to depreciation that is going to apply on second-hand residential properties. Before we get into the details, let’s get a quick recap. Property investors who acquired second-hand residential property after May 10, 2017, that had “previously used” depreciating assets, are no longer valid for claiming depreciation on those “previously used” assets. Depreciating assets, in this case, refers to things like ovens, dishwashers & blinds, etc.

1. Does this change apply to brand new investment on properties as well?

No, they don’t, if you buy a brand new property, you will be able to carry on claim claiming depreciation, the way you did. You can continue to claim both the plant & equipment and structure of the building.

2. How does this change affect the purchase of non-residential properties like offices and industrial suites?

These changes relate to residential property only. Commercial, industrial, retail or any other non-residential properties are not affected in the slightest.

3. Can I continue to claim depreciation on bricks, concrete & windows, etc.?

Yes, you can, in case the residential property was built after 1987 when building allowance kicked in. You will still need a depreciation schedule to calculate them. This component typically represents approximately 80 to 85 % of the construction cost of a property.

4. Can I continue to claim depreciation on plant and equipment items if I buy and have them installed?

Yes, you can, provided they are brand new or from 2nds World or the like. However, if you buy a second-hand item off Gumtree, (for instance), you cannot claim the depreciation. There is now no other depreciable asset class where this occurs. The new laws state that the item cannot be “previously used” for you to claim the depreciation on it. However, if you buy a “previously used” lounge off Gumtree & put it in your office, you can claim depreciation.

5. If I buy a property in a trust or company will I get around these laws?

The proposed change doesn’t apply if you buy the property in a corporate tax entity, the super fund (Self-Managed Super Funds doesn’t apply here) or a large unit trust.

6. What if I bought a property before the budget and lived in it till now?

If you bought a property before the budget & are owner-occupied, and you moved out after 1 July 2017 – you will not be able to claim the depreciation on the plant and equipment in that property. The property needs to be income producing in the 2016/17 financial year.

7. What happens if I inherit a property, can I claim the depreciation on the plant and equipment as well as the building?

Well, you will certainly be able to claim the depreciation on the residential structure of the building, provided it’s built after 1987. So there’s no change. While there is no specific ruling on the plant and equipment it seems to Reliable Bookkeeping that if you inherit the property with plant & equipment contained within, they will be deemed to be “previously used” and you won’t be able to claim them.

8. What happens when I buy a unit that’s three months old and the developer has already found a tenant and is selling it “as new?” Can I claim both the plant and equipment apart from the building allowance?

In this case, the answer is yes. The new legislation gives a six months’ time frame to the developer to find a tenant and sell it as a leased investment without nullifying the depreciation claim to the incoming buyer.

9. Can I still claim depreciation on a property that I bought overseas?

The answer is yes; you can depreciate an overseas investment property… but there are minor differences. Firstly, while claiming the building allowance, with Australian properties, you’re entitled to claim 2.5 % of construction costs per annum, as long as the property was built after July 1985. The rate for overseas properties is the same, but the date is different. Construction of overseas property must have commenced after 22 August 1990. So, if you want to maximize your depreciation benefits on overseas property, look for a newer property built in the last decade or two.

10. Can I claim depreciation if I engage a builder to renovate my investment property?

In simple terms yes – provided all the plant & equipment items that were installed were brand new. You will also be able to claim structural items installed like kitchen cupboards, tiling windows, etc.

We have been asked many times: “What do you think about the changes?” We do agree that the constant revaluing of plant & equipment items on very old properties made no sense and needed refinement. However, I think the method that the Government has taken in disallowing depreciation on properties that are very new doesn’t make a lot of sense and could’ve been rolled out logically.