Depreciation New Rules.

Hey
I was wondering how the new rules on depreciation would effect me if I purchased an 18month old house now for 315 000. As I'm not the first owner can depreciation still be claimed?

Thanks

 

not unless you are talking about building works

 

Division 40 - depreciation on plant & equipment - no

Division 43 - capital works. yes. talk to a depreciation company re potential benefits.

 

Is capital works the cost of the house being built?

 

Would I need to get the cost of the build from the current owners or is there an estimate?

 

A QS can estimate

 

Rose, if the current owners built the house, they might have a building contract. It will have some useful information in it.
You can claim the building itself at 2.5%pa.
The depreciation on the Assets: appliances, floor coverings, hot water etc, can be tallied up and you can use it when you sell the property to reduce your CGT.
Scott

 

A building contract is close to useless as many costs arent included. It wont specify so many things. If a client hands one to me I refer them to Depreciator / BMT etc

A QS report will identify more.

 

when was this made legislation and can it be retroactively applied to a property purchased pre law being passed?

 

There are others on this thread that may know more but my understanding is that it came into effect in May (9th?) last year. If the property was purchased prior to this I believe you could have Div 40 claims retrospectively applied by doing up to 2 years amended tax returns if needed.

 

Thanks @Jane Ridder, that sounds about right from memory

 

9 May last year I think was the budget, but the legislation became law around about Dec last year.
Yes the government can make retrospective legislation - but at least they didn't go back before the announcement was made.

 

All property is affected specifically
1. Contracts made post 9th May
2. Property owned or contracted prior to that date if it wasnt rented prior to 30 June 2017 (rental income in tax return is the specific test NOT availability to rent)
3 Property owned or contract prior to that date that has at any time aftre 9th May been used by owners OR others without income even if just one night (eg impacts ALL holiday lets used for even one night) or even if owners stay in property while doing reno's or capital works

But if it was owned prior to budget night and continually rented no issues.

Note that from 1 July 2017 travel deductions ended for non-company owners AND it also means travel isnt a CGT cost but also may prevent the Div 40 being claimed

 

Yes, the holiday home thing is going to catch a lot of people out. Very few accountants would be aware of that twist.

 

• Holiday lets if you or a relative, friend stays without paying or pays less than market rates !!
• Letting your own home on Airbnb / Stayz is even be affected - Certainly affects the CGT calcs and deductions.
• Allowing relatives to stay in your non-PPOR properties even for one night
• Staying overnight while doing reno's and repairs to a IP
• Change of use for a property can also trigger issues.(eg former IP with a QS report that is now your home. You move out tomorrow. The old QS report is affected)

In 2017 we have some basic questions surrounding this but in 2018 we need to ask more to avoid serious concerns for clients if audited in later years. For many property owned Div 40 can be a significant deduction and just having a QS report is now not enough.

Annually from here on, EVERY QS report must be reviewed to determine if Div 40 ceases. The law change was intended to gradually erode Div 40 deductions. Tax deductions for Div 40 arent ""preserved"" by the budget night changes.

 

the 6 month rule on Div40 items for newly built properties should be noted also.

 

What is this rule Freddy?

 

Sometimes you buy property that’s less than 6 months old. I believe there is an allowance for exemption in such cases to allow depn on PPE. Depreciator is aware of this.

 

S 40-27(5) ITAA97?

I think this subsection keeps assets 'new' if they are less than 6 months old in a new residential premises - is that right Depreciator?

 

Basically, yes that is the relevant section.

It comes with a benefit and a catch:

• No one has resided prior to the current owner (ie vacant unused property) OR
• The asset has been used within the past 6 months and supplied to the taxpayer within 6 months of the premises becoming new residential premises provided the assets within had not been previously used (ie before installed in the new premises)

So no time period applies to a vacant property that is unused and new (benefit) or

The 6 months therefore is seemingly relevant to the occupancy certificate rather than occupancy itself and no ruling on the ATO view has yet been issued as far as I'm aware. So if you buy a unit from Mirvac that had been completed four months ago which had a short term tenant who moved out prior to settlement then the assets may be protected. But if its 6months and one day etc then the Div 40 may be lost. (catch)

Its rare to find tenanted property for under 6 months that is then sold vacant all within a 6month period.