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Apart from introducing a slew of measures to help first home buyers step into the property market (read here), budget 2017-18 also suggested some changes in the deductions allowed for residential investment properties. Those with interstate investments can no longer claim for interstate travel for property inspections and management. However, the fee paid to a local property manager remains deductible. Apart from travel deductions, there are also changes in depreciation deductions for plant and equipment assets. As the end of July draws near, we bring you an informative post on what exactly has changed and what can you really claim.

 
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Plant and equipment depreciation deductions

Until the recent announcement, property investors were eligible to claim plant and equipment depreciation on qualifying assets in an investment property, even if the previous owner had installed the assets.

Plant and equipment assets refer to the fixtures in a property that are usually easily removable such as carpets, dishwasher, hot water systems and even smoke alarms.

As per the new rule, plant and equipment depreciation deductions for residential investment properties will only be limited to the assets purchased by the investor, which means investors can no longer claim depreciation on plant and equipment assets existing in a second hand property. Investors will still be able to claim capital works deductions.


Here’s what you need to know in a snapshot:

  • The changes in depreciation deductions do not affect investment in new properties. Further, if you purchased a second-hand property before 7.30 pm on 9 May 2017, you will continue to claim depreciation on previously existing assets normally. 
  • You can still claim for capital works (or depreciation in the building structure), which make up more than 80 percent of the construction cost of a house. Hire a quantity surveyor to prepare a depreciation schedule to calculate your deductions.
  • The changes do not affect non-residential or commercial properties and only pertain to residential investment properties. 

 

Tyron Hyde, director of quantity surveying firm Washington Brown clarifies the changes further. He explains that

  • You can claim depreciation on both the structure and plant and equipment items if you hire a builder to construct a house that continues to be an investment property. If you are renovating a property that is used as an investment, you will be able to claim depreciation on it once you have finished the renovations. 
  • However, if you renovate the house while living in it and sell it to an investor, the new owner will no longer be able to claim depreciation.

 

Investors purchasing second-hand properties might feel at a loss, however, what they lose in deductions is now deducted from the sale price as capital loss when the property is sold in the future.

If you own an investment property, don’t wait before consulting an experienced property surveyor to have a depreciation schedule drawn up and claim your deductions. Even if you have recently purchased an investment property, having a depreciation schedule will help you maximise your capital works deductions.

The residential investment property market has undergone a lot of change in the recent past. While investors continue to take advantage of negative gearing, changes surrounding deductions and restrictions on investment lending call for a well-planned strategy to help you build a winning property portfolio. If investment is on your mind, we can help you take the next step by sourcing competitive home loan deals from lenders across Australia that you can compare here. Our savvy mortgage brokers will guide you on every step of financing your investment property (as well as your own home). Get in touch now by filling the enquiry form below or ask a question.

As a bonus, here is an investment property guide you will surely find handy.

 

By Vidhu Bajaj
HashChing Content Writer

 

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