Depreciation of fixtures and fittings for a established property

G'day !
I'm confused with the new changes to depreciation in Nov 2017. Can someone pls answer the following:

(1) Can I still claim depreciation on fixtures & fittings (blinds, curtains, heating/cooling, dishwasher, aircon) on an established property (say 3 years old) that has already been rented out previously? If so, what are they

(2) Can I still claim depreciation on fixtures & fittings (blinds, curtains, heating/cooling, dishwasher, aircon) on brand new property just completed by a developer (note: I'm not the person who built it)

TIA

 

1. potentially yes as long as you owned by prior to the relevant date - i thought it was around 9 may 2017 but may be wrong
2. potentially yes.

 

For properties that were purchased prior to 9 May 2017 AND were available for rent during the 2017 financial year (i.e. prior to 1 July 2017) then you will continue to be eligible for Division 40 depreciation deductions.

On the 5th August 2018 Bob purchased a two bedroom apartment that was constructed 2 years ago. The apartment had a number of depreciating assets (carpets, oven, air conditioner, etc) that were purchased and installed by the person who previously owned the property.

Bob installs

1. New blockout blinds in the lounge room purchased from Harvey Norman
2. A second hand television from a garage sale

Bob will not be able to claim a Division 40 capital allowance deduction for the depreciating assets that form part of the property as these were installed by the previous owner. He will also not be able to claim a Division 40 capital allowance deduction for the second hand television.

Bob will however be able to claim a Division 40 capital allowance deduction for the new blockout blinds as they are new and have not previously been used when he installed them in the property.

The changes have not impacted the ability to claim Division 43 Capital Works Deductions and, as this is usually a much more significant deduction over the longer term, it is still worth looking into whether it is worth obtaining a Depreciation Schedule at least for those deductions.

For people who are purchasing new residential premises there is some relief from the changes that to apply.

If you have purchased a property that is new from a builder for example the depreciating assets will generally not be considered to be second hand assets and so are eligible for the Division 40 capital allowances deductions.

There are some conditions that apply however

1. The depreciating assets are sold to you as part of the sale of the new residential property; and

2. No one has been living in the property at a prior time in which the asset is installed before it was held by the current owner;

OR

3. The assets were used by someone living in the property in which the asset is installed but from the date from which they became new residential premises to the date the property was sold to you no more than 6 months has elapsed.

This rule was designed to assist in situations where a builder might be renting out a new residential property for a few months before being able to find a buyer for the property.

Joan purchased a new residential apartment from Bob the Builder on 2nd December 2019. The apartment was completed on 2nd September 2019 and Bob rented the property to Peter and Jane. The depreciating assets that Joan has purchased with the new residential apartment

1. Have been installed in new residential premises purchased as part of the sale by Joan.
2. Bob the Builder has not been able to claim a deduction for those assets under Division 40
3. The assets installed in the apartment have been supplied to Joan within 6 months of the apartment becoming new residential premises

Therefore, Joan would be entitled to a deduction.

 

Thank you Mike A, well explained. If I am purchasing a brand new property (none has lived before) - what is it that I need to keep as a record prove to ATO this is the case? Do I need to include a list of items as part of the sales contract/anything else?

Even for the 2nd scenario - say where I bought a house within 6 months from the original owner - what document/proof I need to keep for record-keeping purposes for ATO?

Thanks
Sam

 

A new property either constructed by your builder or acquired OTP will be eligible. Your purchase contracts will likely indicate if its new as GST will be a feature of the total price paid. You may want them to provide a writte confirmation about how the property has been use prior to your acquisition. If vacant no issue. If rented seek further information. I would be asking if my new property was used in any way. If not, no problem.

Buying a retively new property from a former onwer of 6 months will not be eligible in many cases. Seek a QS opinion. They will need to consider if the proprty is eligible for Div40. The manner they complete the QS report will be the tax advice

 

Can someone remind me why these 2017 changes were brought in? Were people allocating higher purchase prices to the P&E to get higher depreciation deductions?

 

Prob to stop new owners from depreciating assets also claimed by the previous owners.

 

Just to elaborate on what Terry said.
Let's say somebody bought a property 12 years ago and rented it out for 5 years and claimed depreciation on the oven to the extent where it was almost written off.
Then they sell that property and another investors buys it. The oven is still in good condition so they get a Depreciation Schedule prepared that ascribes a healthy value to the oven and they depreciate it for, say, 4 years when they sell the property to the next owner.
Owner number 3 gets a Dep Schedule also that puts a decent value on the oven and away they go. Then owner number 4 buys the property...
So the same oven, or air con, or carpet or whatever could get depreciated over and over again. The changes were aimed at stopping that from happening.
Scott

 

Two reasons

1. All laws can change on a whim. The govt saw tax revenue
2. Misuse of tax deductions

 

Where we have the biggest problem with it is that it halts any available claims in the middle of an asset's effective life. E.g., you could move out of your new house after two years, but your oven, which has a twelve-year effective life, has no claim on it for ... reasons. And if you sold it, why should the next owner not get the remaining ten years' worth of claims?

We knocked on a lot of doors and never really got a satisfactory response as to how they thought this was happening. Fair enough that they stop an asset's value from resetting at re-settlement of the property (although we still wouldn't like it, and they're still okay with that happening with commercial properties), but in the instances of my comments above, where's the logic?

 

To act as devil's advocate, how much would you pay for a two year old oven? Not 10/12 of the original price.

 

If the previous owner had claimed on it using the diminishing value method (which is likely, and something a quantity surveyor might have to assume), there'd be less than 10/12 of its residual value to claim, so that would probably work out just fine.

 

Impossible to know in many cases what a previous owner may or may not have claimed. It may have made sense if an item was past its Effective Life, that there is nothing left to claim. So on a 12 year old house with no renovations, depreciation on all the Assets is gone. On a 5 year old house, there would be stuff to claim. A bit messy and hard to police, so they just canned the depreciation altogether on second-hand Assets.

 

True. I was trying to get at that in my comment by saying that we'd have to assume the highest/most rapid claim had been made--but as you say, even then, the previously used values themselves would be a mystery in most cases, and a QS would simply have to apply their own but lop off, say, the first two years' DV + LVP claims.

Even then, on a five-year-old house, how would they necessarily know when the assets had been installed within that five-year period, how long it was rented for, etc.?

Too big a can of worms, so I suppose it's not surprising that they took the sledgehammer approach.

 

I bought my current townhouse brand new, lived for just over 2 years and now will rent it out. It came with AirCons, Oven, Dishwasher, Security alarms, blinds etc. I have since then added 3 Security Doors and garage shelving fixed to wall as only improvement.

I have just signed up with BMT and on the online form they are asking if I bought new from builder or developer. What is the difference? How do I know, I think it is the builder. The contract of sale has the vendor as a pty company with the builder as director.

I am assuming reading the thread that I can claim depreciation on all the fixtures and fittings that came with the new property and the doors/shelves I have added since then. Is this correct?

 

DOESNT sound like it

 

Hello, kanad. We're always happy to answer these questions and are probably best placed to do so--not to impugn the fine minds here at all, it's just that we're the ones asking the questions of you!

I think you've misunderstood the question: it's not a binary choice of one or the other. We're asking if you purchased it brand new (from anyone, really), or if you engaged the builder/developer to construct it (in which case we need to use your contract price).

Unfortunately, you can't claim the plant and equipment that was there when you lived there, but you can still claim plenty yearly, and for a long time, on the capital works (the structural elements).

 

Thanks Chris for clarifying. The question was confusing for someone new. Also reading your article it only mentions second hand properties as no longer allowed to claim depreciation. Because my property was new when I bought I didn’t think it as second hand. Of course not doubting you but the article will confuse people like me who don’t know the rules in detail.

https://www.bmtqs.com.au/bmt-insider/new-depreciation-legislation-for-australian-property-investors

 

The legislation and the basis for the law change is "used" assets.

1. A property can be new and may, or may not, still be considered to have new assets
2. A property can be owned prior to 2017 and if rental activity ceases and re-starts the test for üsed assets" is reapplied and the assets are now all considered to be used. No depreciation but yes you can claim capital allowances. The unclaimed div 40 depreciation is still important as it can later be used to calculate a CGT loss that may offset the reduced costbase so you arent subject to more capital gains tax than under the former regime.
3. Buying second hand "new" assets wont be eligible. That happens a bit with people who furnish from gumtree.

 

That's fair. Reading over it myself, it doesn't make any mention of what happens with previously owner-occupied properties. I might need to get someone to add a line or two to that particular article. We've published other more detailed articles on the topic, so I'm surprised that detail got left out of this one.