Are residential properties still a good investment?
What does this mean for you as an investment property owner?
How do the changes impact on the tax benefits from your investment properties?
The key changes:
- Property investors purchasing non-brand new (i.e. already lived in) investment properties after 7.30pm on the 9th May 2017, will not be able to claim depreciation expenses on existing plant and equipment assets i.e. items within an investment property that are generally considered ‘easily removable’ or mechanical in nature (not structural), such as carpets, blinds, kitchen appliances, security systems or air conditioners.
- Owners of non-brand new residential properties that exchanged contracts prior to budget night (7.30pm on the 9th May 2017), but the property does not become an income-producing asset (investment property) until 1st July 2017 or onwards are affected.
Not affected by the changes:
- New assets added by the owner remain depreciable expenses. For example, purchasing and installing a new stove.
- Capital works (such as the building structure constructions costs) are still depreciable – and often comprise 85-90% of the total.
- Property investors who purchased brand new (i.e. never lived in) residential properties, or substantially renovated properties, and have not lived in it or used it prior, are not affected by the new rules. Full depreciation entitlements apply.
- Property investors who purchased non-brand new (i.e. already lived in) residential investment properties prior to 7.30pm on the 9th May 2017 will not be affected. They can continue to claim depreciation expenses on existing plant and equipment assets, including any additions by the owner.
- Residential property owners can claim depreciation deductions that arise in the course of carrying on a business.
- Commercial properties owners are unaffected.
Please note the above is a general summary of the key points and changes to property depreciation legislation only. Please contact us if you would like further information and advice specific for your circumstances.