Pleased to see we now have some clarification on what is in and what is out for the denied depreciation deductions for residential rental property investors. The Government has released the exposure draft on one of its Housing measures from the May Budget, namely the limitation of travel and depreciation deductions and is inviting submissions before 10th August.
The draft confirms one of the key unknowns, whether the limitations will apply to depreciable items included when purchasing new residential property. Thankfully a common sense approach has been taken and new properties (therefore previously unoccupied) have been excluded from these measures. There was concern that if they weren't, this could have a huge impact on attracting investors in the apartment market.
There is also less incentive for the DIY renovators, with the cost of travel when maintaining (or improving) a property disallowed and excluded from its cost base when sold.
Where residential income is earned in the course of operating a business or through a company there will still be access to these deductions. It will interesting to see how many investors now choose to report their activities as business operations and how the ATO will police this.
Plant and equipment depreciation deductions From 1 July 2017, the Government will limit plant and equipment depreciation deductions for investors in residential investment properties to assets not previously used. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans. Plant and equipment used or installed in residential investment properties as of 9 May 2017 (or acquired under 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. The Government has released exposure draft legislation and explanatory material for amendments to give effect to the Budget announcements outlined above.