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Last week marked the biggest change to depreciation legislation in 15 years.

As part of the government’s efforts to claw back negative gearing parliament passed the Treasury Laws Amendment (Housing Tax Integrity bill) into legislation.

This legislation means that you can no longer claim income tax depreciation for plant and equipment assets in second-hand properties unless you have personally made the outlay.

What does this mean for property investors?

This legislation is grandfathered which means if you exchanged contracts prior to 7.30pm on the 9th of May and have previously been claiming tax deductions on the assets you will not be affected.

However for those second-hand properties purchased after 7:30pm on the 9th May you will no longer be eligible to claim these deductions.

What are plant and equipment assets?

Plant and equipment assets are items considered to be easily removable from the property such as air-conditioning, solar panels, blinds and curtains, and carpet.

What can be depreciated?

The good news is there are still a number of opportunities to claim income tax depreciation for investment properties.

New houses are still eligible for deductions on plant and equipment as are properties considered to be substantially renovated by the previous owner.

Plant and equipment assets that have been installed and paid for by you personally will also continue to be income tax depreciable.

Other examples where you will still be able to claim deductions for plant and equipment include:

  • Deductions that arise in the course of carrying out a business
  • Deductions for a property held by public unit trusts and managed investment trusts
  • Where the property is held by a corporate tax entity.

Investment property owners will also continue to be able to claim for qualifying capital works depreciations. These are considered to be the building’s structure and permanently fixed assets.

Still unsure what these changes will look like for you?

If you would like further information on how these changes might impact you contact your MGI advisor. BMT has a helpful tax depreciation calculator if you are considering purchasing a residential investment property in the future and would like to know what tax deductions you might be able to achieve.

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About the author

Cameron Barber

Director, Taxation Consulting & Business Services

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