Depreciation - changes

Hi all

The mrs has mentioned some changes to the law when it comes to depreciation

We purchased a property late last year which had undergone a recent renovation and thought we may get benefit from a depreciation schedule given the fairly new kitchen and bathroom that was put in. Apparently the wife says this benefit is no longer available, not that I don’t trust her but Seeking confirmation as in my head it doesn’t really make sense to buy something that has had a facelift within the first couple of years of it happening.
Happy to be educated in why this would be a good strategy though, do see benefit in maintainence costs hopefully being minimal but in my opinion it hurts the seller getting a better price as it’s limiting the potential buyers.

Am I missing something?

 

Good not to trust your wife, but she may be correct in this instance if the kitchen was installed while it was a rental property. 2nd hand items that are plant and equipment are no longer claimable. Part of the kitchen may even be building expenses - a depreciation person will be along shortly with a better explanation.

 

To confirm,

The property was not previously rented when we purchased it, and it is now an ip for us being rented.

Thanks

 

That doesn't change my answer. Was it brand new?

 

Terry
I believe it was new as noted to me by the BA that we used at the time

Would I be required to prove this if the work wasn’t undertaken by us and we didn’t get any forms of receipts etc

Appreciate your feedback

Thanks

 

When did you start renting the property ?

 

November/December 2017

 

Then you have a problem

Maybe some capital works in there

 

Apologies
Capital works meaning no benefit to me and no depreciation

 

Capital works will still be a benefit. Depreciation not anymore for your situation.

@BMT Tax Depreciation @Depreciator @WashingtonBrown will chip in im sure

 

So my original understanding of capital works was you claimed 2.5% every year
Are you referring to something similar

 

Thats it

 

Good Morning.

I'll start off with the 'bad' news. Unfortunately you will not be eligible to claim any fixtures and fittings that were in the property when you took ownership of it. This includes any assets that were recently installed by the previous owner.

If you follow this link: Expenses deductible over several years - borrowing, depreciation, capital works the ATO have provided a few scenarios and additional information regarding the changes.

One scenario in particular is similar to this situation;

"Sue bought her house in 2009. In October 2017, she listed her house for sale. While it was advertised, she moved out and then replaced the carpet. No one lived in the house while it was advertised. The house was then sold to Tim. After buying the property, Tim rented it out immediately.

Tim can't claim depreciation deductions for decline in value of any of the depreciating assets in the property because they are all previously used. Also, he cannot claim depreciation deductions for the carpets because he did not own the asset when it was first installed ready for use."

What there may be a value in claiming are any capital works that have been made over the years (Built in kitchen cupboards, toilet bowls for example) and if the property was constructed after 1987 you will be eligible to claim the original structure.

Should you make any improvements to the property such as new floor coverings, a new hot water system or air conditioning you will be able to claim these assets.

 

Yep. Chris is correct.
I might add a bit to this.
The depreciation you would have been able to claim on the second-hand Assets under the old rules is not completely lost. That entitlement is noted and when you sell the property the entitlement is tallied up and can be deducted from your capital gain to reduce your CGT. So the depreciation is in a sense deferred. Yes, it's a bit odd.

 

But.....Probably only if you have a QS report !

Many believe a QS has less value now. I believe its all still same value - Just some benefit is deferred until a scrapping for a specific item (eg replace oven in five years) or a sale of the property. And the Div 43 (Capital Allowance) which often comprises a hefty longer term deduction is unchanged. It sounds so small to mention 2.5% but when its $6K a year that pays for the schedule within the first few months

One of the worst mistakes people can assume is that a QS report is no longer worth the cost. Worth discussing with a QS before making that decision