New depreciation rules, how does it affect residential property market?

The Federal Government has proposed adjustments to depreciation legislation in the 2017 Budget.

Under the new rules which are yet to be legislated by Parliament, investors will be able to depreciate new plant and equipment assets within a new property and items they add to their property; however subsequent owners who acquire a property after 9th of May 2017 will not be able to claim depreciation on existing plant and equipment assets.

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In a few years time, how will it affect residential property market? What are your thoughts?

 

I actually completely agree with stopping the repeated depreciation of existing plant on older properties. I would love to see the rules changed to something more simple such as:
All plant is depreciated by 20% PA for the first 5 years and is transferable on sale.

That would make it really simple and would encourage investors buy newer properties or to upgrade plant. This helps the broader economy.

My thoughts... In its current form, it will only hurt new constructions and only by a small percentage.

 

Meaning less attractive for investors on older property?

 

Meaning that the government doesn't need to implement stupid laws to prevent people from claiming the same item multiple times.

For those who don't understand the current rules:
I buy a new dishwasher for $2,000 for an IP. I depreciate it to $0 over 5 years at a personal tax rate of 40% which means that I get an $800 tax credit.

I sell the house to investor 2 and he gets a QS which states that the current value of that dishwasher is $1,000. He depreciates it over 5 years and at the same tax rate, gets $400 in tax credit.

Sells to investor 3 and he gets a new QS which states the current value of the dishwasher is $600. Gets a tax credit of $240.

Over three owners, you have depreciated the item worth $2,000 by a total of $3,600.

This is a loophole that should be fixed but instead of fixing it, they've screwed it. I am all for minimizing tax but it should be fair and simple to understand.

 

I do not.

It would have been better if schedules were allowed if passed on to new owner, but probably too costly to think about the admin for those that just want our $$$

 

In a few years time, everyone will just adapt when the rules are clearer. Dishwashers etc will just be separately listed in the contract with individual prices on them. Developers might not instal them at first.

 

Tax benefits should be the icing on the cake, not the prime reason for choosing an IP.
Marg

 

It won't.
Capital allowance deductions are usually not significant. $300-$3000pa. At margin tax rate it is $100-$1000 in tax savings. A wealth creation strategy is not founded on a tax strategy, albeit a tax strategy does support a wealth creation stratrgy. So I'm sure house price rises will more than compensate for the $100-$1000 in tax lost.

 

If we build new townhouse and sell, who get the depreciation from the plant and equipment? Me or the new owner?

 

For those not completely aware, depreciation is made up of essentially two components: the building component, and plant and equipment (ceiling fans, air conditioners, dishwashers, etc.). From now on, only plant and equipment that was bought by the investor directly (e.g. during a replacement or renovation) will be able to be depreciated under these provisions. Until now, you could still claim a deduction on those items as part of the purchase of the property. They will now form part of the cost base for capital gains tax (CGT) calculations.