depreciation rule change after 09/05!

Discussion in 'Accounting & Tax' started by einentiva, 28th Jun, 2017.

Join Australia's most dynamic and respected property investment community
Tags:
  1. einentiva

    einentiva Well-Known Member

    Joined:
    6th Jun, 2017
    Posts:
    54
    Location:
    Maroubra
    Realised this after buying my ip after this date! Its only a 4 year old home which would have allowed ample depreciation under the old rules gutted.

    Any thoughts on how this change will affect property prices in the future. Would it increase off the plan property prices? Would 2nd hand properties fail to sell?

    Share your thoughts!

    Spewing.....
     
  2. Trainee

    Trainee Well-Known Member

    Joined:
    24th May, 2017
    Posts:
    10,256
    Location:
    Australia
    Thought: what are you talking about?
     
  3. Depreciator

    Depreciator Well-Known Member

    Joined:
    15th Jun, 2015
    Posts:
    1,963
    Location:
    Sydney
    I don't think it will have much impact on purchase decisions. Depreciation is just a bonus, it's not really a reason to buy or not buy a property.
     
    Ross Forrester and chylld like this.
  4. ashish1137

    ashish1137 Well-Known Member

    Joined:
    12th Sep, 2015
    Posts:
    931
    Location:
    Sydney
    I think it adds nearly 1% to rental yield (if you are buying a new property at about 5% yield already and at low to high 3s. I'd say it does impacts.

    If you have 4 new properties vs some has 4 old properties. Just consider the difference each year for next 10 years.

    Regards
     
  5. Daniel Mumford

    Daniel Mumford Member

    Joined:
    7th Dec, 2016
    Posts:
    13
    Location:
    Brisbane, QLD
    "From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans.

    This is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value. Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.

    These changes will apply on a prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

    Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property."

    I agree with @Depreciator I don't think its going to make a big difference.

    If you are wanting to maximise your depreciation buying an older home in a good location and undertaking a full renovation could be the way to go. You will see stronger capital growth, have an increased rental yield and be able to depreciate the plant and equipment you add to the property.



     
    Ross Forrester and Perthguy like this.
  6. Phase2

    Phase2 Well-Known Member

    Joined:
    14th Jul, 2016
    Posts:
    1,289
    Location:
    Perth
    How does doing a full reno increase your yield? All of my scenarios show that yield gets worse in % terms, but is assisted by depreciation. A full reno is usually more of a CG play to try and draw equity, or flip. I guess it depends on your definition of a full reno...
     
  7. Perthguy

    Perthguy Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    11,767
    Location:
    Perth
    I bought a run down old dump in Perth. Rent was $320 (existing tenant) but would have been a lot less if I had to find a new tenant (maybe $260?)

    After the first tenant left, I removed the wall paper, ripped out the carpet, blinds, kitchen and laundry. Then painted, installed a $400 secondhand kitchen from Gumtree and carpet tiles from Gumtree. I made a laundry cabinet from leftovers from the kitchen and dropped in a cheap laundry tub from Bunnings then painted the whole outside. All up it would have been about $10k. Rent immediately after renovating was $440 pw, which is a much improved yield over $320 pw.
     
    Gypsyblood likes this.
  8. Dan Donoghue

    Dan Donoghue Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,679
    Location:
    Gold Coast, QLD
    That's not really a "Full Reno", I believe @Phase2 was referring to a complete reno of the property ie a lot more than 10k
     
    Phase2 likes this.
  9. RetireRich101

    RetireRich101 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,149
    Location:
    Sydney
    are you able to produce a bar chart showing the dim/prime of the same house that was purchased pre/post 9 May?
     
  10. Pumpkin

    Pumpkin Well-Known Member

    Joined:
    26th Jun, 2015
    Posts:
    1,342
    Location:
    Brisbane
    Apologies in advance, I am doing speed-reading (EOFY stuff). Also might not really apply to OP here.....
    I attended an Accoutants' event last month and meant to write about some changes affecting us. One of them being this. Even the Speaker said they will be seeking clarifications as there isnt much details for ATO. For one thing, some new developments provide free appliances. So if the rule is that "only the purchaser are entitled to claim Depreciation", the Accountants of the Developer/ Builder or whoever buys it will be very busy keeping records of those appliances, whilst the Buyers will lose out....
    Will update when I find out more.
     
  11. Phase2

    Phase2 Well-Known Member

    Joined:
    14th Jul, 2016
    Posts:
    1,289
    Location:
    Perth
    Awesome ROI! Smart buying means that you had the chance to do a full cosmetic reno though, and I suspect you did most of the work yourself. ;)

    Like I said, it comes down to what you define as a full reno.
     
    Gypsyblood and Perthguy like this.
  12. Perthguy

    Perthguy Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    11,767
    Location:
    Perth
    All DIY except electrical, plumbing and asbestos removal.
     
  13. Phase2

    Phase2 Well-Known Member

    Joined:
    14th Jul, 2016
    Posts:
    1,289
    Location:
    Perth
    W
    Whaaat!? You didn't do you own asbestos removal? If you'd followed old-mate Ald's tips, you could have saved yourself thousands.. :D
     
    Perthguy likes this.
  14. Depreciator

    Depreciator Well-Known Member

    Joined:
    15th Jun, 2015
    Posts:
    1,963
    Location:
    Sydney
    At this time of year, we are flat out producing Depreciation Schedules. We're all looking forward to some clarification of the new rules.
     
    RetireRich101 likes this.
  15. Adelaide B

    Adelaide B Well-Known Member

    Joined:
    10th Mar, 2017
    Posts:
    62
    Location:
    Adelaide
    If I bough a 1960 OLD house, with this new rule, is it still worth to do a depreciation schedule?

    If we do cosmetic renovation (fresh paint, new floor, new carpet, new kitchen, etc), we can just pass the receipts to the accounts, so we can claim the tax refund.

    Is it still worth to spend $600 - $1000 to do a deprecation schedule?
     
  16. Depreciator

    Depreciator Well-Known Member

    Joined:
    15th Jun, 2015
    Posts:
    1,963
    Location:
    Sydney
    Nobody charges $1,000 for a Dep Schedule, but putting that aside, if you exchanged contracts after May 9 and there were no existing renos, there isn't anything to claim. And yes, if you do work to the property and have the receipts, your accountant can take care of them. Of course, they may like you to get someone else to do a Dep Schedule, but if you have the costs that will be cheap.
     
    Perthguy and Adelaide B like this.
  17. Daniel Mumford

    Daniel Mumford Member

    Joined:
    7th Dec, 2016
    Posts:
    13
    Location:
    Brisbane, QLD
    Hey @Phase2 , I guess it does depend on what you call a full reno. We did one in Brisbane (Zillmere) last year, I guess it could fall under the cosmetic renovation banner as we didn't change anything structurally other than taking out a wall between the kitchen and living area.

    Purchase price: $445,000
    Rental at the time: $380 (4.44%)

    spent just under $50,000, works included landscaping and fencing, External house wash, preventative maintenance, Kitchen replacement and wall removal, Bathroom renovation/ update , internal repaint, floor polish, new lighting, aircon in the master and living and updated switches throughout, added sliding doors to existing robes and a few other finishes.

    Total price including reno: $495,000
    now renting : $465 (4.88%)
    New Val estimate after reno : $530,000 - $550,000 (this was also 12 months on from original purchase)

    We have done a fair few others that I'm happy to talk about if you want to get in touch and have a chat.
     
    Gypsyblood and Perthguy like this.
  18. Phase2

    Phase2 Well-Known Member

    Joined:
    14th Jul, 2016
    Posts:
    1,289
    Location:
    Perth
    That's a great result! Surprised you managed to do all that for less than $50k. Did you do any of the work yourself or was it all contracted out?
     
  19. Daniel Mumford

    Daniel Mumford Member

    Joined:
    7th Dec, 2016
    Posts:
    13
    Location:
    Brisbane, QLD
    As part of our business we have an in house handyman (ex cabinet maker) for all of the tasks that add up if you get specific trades to do them (demo, strip out, patching and prep for painting, house washing, rubbish removal). Everything else is contracted out to the relevant trades and most of the jobs are ready to go therefore no downtime and a straightforward job for them.

    We have good relationships with reliable trades which also helps a lot, the know they drill when I'm contacting them to undertake a renovation like this.
     
    TadhgMor, Pumpkin and Perthguy like this.