Depreciation Rules for Residential Property Investors

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The government has submitted proposals to adjust the depreciation legislation in the 2017 Budget. The Parliament has legislated new rules allowing investors to depreciate new plant and equipment assets in a new property and items they add to it. However, subsequent owners who buy the property after 9 May 2017 will not be allowed to claim depreciation on existing plant and equipment assets.

The good news is investors may still claim qualifying capital works deductions, including additional capital works made by themselves or a previous owner.

According to the budget notes, existing investments will be grandfathered, which means that those who have purchased a property before 9 May 2017 may still claim depreciation under the old rules. The new legislation has been in force starting 1 July 2017. If you fall under this category, you may still claim depreciation on plant and equipment assets, regardless whether the property is new or second-hand.

To claim, you have to present official documentation such as bank statements and receipts and accurate depreciation and capital works schedules.

 The depreciation schedule outlines the amount you claim in depreciation every year while the capital works schedule outlines building and construction expenses, costs of altering a building, capital improvements to the surrounding property and how much you can claim every year. Expenses can be written off at 2.5% every year over 40 years for rental properties built after 15 September 1987.

 Those who do not have building or construction records can obtain an estimate from a quantity surveyor, clerk of works, experienced builder or supervising architect. A quantity surveyor can also create a depreciation schedule. They are experienced in valuing assets accurately to help you save money in the long run.

Meanwhile, expenses you cannot claim are those related to your personal use of the property, utility bills paid by the tenant, borrowing costs when you’ve borrowed against the investment property’s equity for private use and those related to the sale or purchase of the property. However, many of these can be part of the cost base. You should document and keep all records of all your spending from the start of your investment.

For more information about taxes in Australia, contact a Specialist to discuss your particular circumstances.

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Chan & Naylor Group has nationwide offices in Brisbane and Capalaba in Queensland, Melbourne and Moonee Ponds in Victoria, East Perth in Western Australia, and Bankstown, Parramatta, Pymble, North Sydney, and Sydney in New South Wales.

 

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