Depreciation Ruling

Hi All - Is anyone clear on the Depreciation ruling when the builder/developer puts tenants into a brand new property prior to the first sale. 1. Can the new owner still claim full depreciation even thought the property is occupied, and 2. what is the time frame cut off, if depreciation can be claimed on a new tenanted property.

 

I recall reading about some flexibility in the definition of new to allow for a few months in these circumstances, but a QS would know more.

 

I went through this scenario just recently. Had a tennant in my brand new unit for 4 months prior to settlement. The QS allowed flexibility and was factored into the calculation. Basically was able to claim 100% of the depreciation.

 

explanatory memorandum has an example

Example 2.2: Assets installed in new residential premises

Hannah purchases two apartments off the plan from Developer Co. The apartments are supplied three months after completion – one is already tenanted and the other is vacant.

In addition to the construction of the apartments, Developer Co has fitted out the apartments, installing ready for use depreciating assets including curtains and furniture prior to settlement and the transfer of the title to Hannah. Developer Co has also fitted out the shared areas of the complex in which the apartment is located, installing ready for use a range of deprecating assets that are the joint property of the apartment owners.

All of these assets are new at the time of installation. As these assets were first installed by Developer Co, not Hannah, they are previously used and a deduction would not be available under the general rules established by these amendments.

However, a deduction is still available to Hannah for the depreciating assets (including Hannah’s share of the assets installed in the shared areas of the apartment) for the period she holds the assets as:

• the assets have been installed ready for use in premises that were supplied to Hannah as new residential premises or in other real property supplied as part of the supply of residential premises;

• Developer Co has not claimed any deduction for the decline in value of the assets (and nor has any other entity); and

• either (excluding assets installed in the common property):

– for assets in the first apartment, the assets were only used or installed in the apartment, which was supplied to Hannah as new residential premises within six months of the apartment first becoming residential premises; or

– for assets in the second apartment, no entity has resided in residential premises in which the assets have been installed before Hannah held the assets.

Exception for certain entities
2.54 The reduction in the amount that can be deducted also does not apply to deductions incurred by an entity for an income year in which the entity is:

• a corporate tax entity;

• a superannuation plan that is not a self managed superannuation fund;

• a public unit trust (within the meaning of section 102P of the ITAA 1936);

• a managed investment trust; or

• a partnership or unit trust if all of the members of the partnership or trust are entities included on this list (including this item).

 

Thanks All - @MikeLivingTheDream, @Shazz@ and @Terry_w