Work around for recent changes to plant equipment depreciation rules

Hi,

Have just been listening to the property couch episode about these changes and had a thought.

This is likely very impractical, but could you technically exclude all plant equipment from a sale contract, and then sell the equipment separately "second hand" to the purchaser? Would this work around the issue, making those plant equipment depreciable again?

Im not planning to attempt this, just curious to where the boundaries of this new legislation lie.

cheers

 

Part IVA - could prevent this.

I haven't read the new legislation but does it cover 2nd hand items?

 

Perhaps it would, however, would this be considered 'tax avoidance'???

 

The legislation refers to NEW assets first acquired by a taxpayer. This prevents acquisition of second hand assets altogether. It has an unintended consequences as a result for those who let furnished property. Not sure how that will pan out

 

What if the investor replaces the dishwasher (for example) with a secondhand dishwasher bought off ebay, gumtree, etc? I would have thought the investor could depreciate the cost of the secondhand dishwasher in this instance??

 

So an existing property with a hotwater system - this would not be new so even if contracted separately this would therefore not be claimable, even if the vendor bought it say 1 day before the sale contract was entered into.

 

Yep and if I buy a OTP property and sell it the following day the new buyers cant claim the $15K of depreciable Div 40. I can claim 1 day ie $40......Only the Div 43 can be claimed by the buyers

Resale of OTP now requires better buyer due diligence. It may cause a tow tier price range. Buyers seeking to invest would want to buy new from the developer rather than a OTP resale for this reason. This issue erodes quickly so after 2-3 years the issues is of less differential

 

Doubt it, wan't that the whole point of a change in legislation.

 

The final legislation wording is still to be released. There has been inconsistent comment about how it may operate.

In some it simply says the new owner must incur the expenditure. That seems far too easy to bypass and I would never expect such a simple change as it too easy to work around it. In other announcements it says new assets first acquired by the taxpayer.
I believe the latter is the case.

Whether there is then a ruling etc dealing with second hand gumtree etc acquisitions we will need to see.

 

I was under the impression this was to address the gap in legislation, where by an item might have been fully depreciated by the previous owners and the new owners start to claim depreciation again. It's also curious that only property has been targeted, when this gap exists across all sectors.

This implementation seems to be a sledge hammer for the intent of point scoring against property investors. Actually, I'm not sure what the point is...

 

The biggest tax benefit is apartments due to common property etc.
Basically its a multi-pronged strategy to limit incentives to trade in apartments ie OTP etc.

They didnt use a sledgehammer. A real small jackhammer to dull the edges. But when you look at the OTP stamp duty changes etc its all a erosion that will pull buyers from the market. Bit here a bit there. Tighter lending rules etc etc Less demand = lower prices ? I suspect they would rather the market stalls and not collapse.

Only resi is affected. I cant help feel that these issue and the state duty and land tax changes all add up.

 

Don't confuse wealth creation with tax minimisation. Sure tax minimisations aids in wealth creation, but I see individuals all the time choosing to buy an IP based on depreciation benefits etc.

Pick an asset based on asset performance. Depreciation is but the icing on the cake.

 

Well said. Its like a tail doesnt wag a dog. Tax benefits or tax outcomes should be a part of the investment strategy. I see a day coming where growth rates may become negative or negligible. Many property investors have abandonded strategy for a system of buying based on affordability by lending that seemed to be endless supported by equity that seemed to rise. Many investors see that as the norm and it may not remain that way. Investment choice needs to be based on fundamentals and not an assumption that prices will always grow.

There is a great thread on PC about a owner of property in Karratha. Its plummetted in value and the debt far exceeds its value. I pray that this isnt the new norm but more tales like this could start to emerge