Depreciation deductions on second-hand property
The Turnbull government passed legislation regarding how depreciation deductions on second-hand property can be claimed moving forward.
Tyron Hyde, CEO of Washington Brown, highlighted six key takeaways from the legislation:
- Those who acquire a second-hand residential property after May 10, 2017, which contains previously used depreciating assets, will no longer be able to claim depreciation on those assets.
- Those who purchase brand new property will carry on claiming depreciation exactly the way they have done so to date.
- The proposed changes will only impact residential property. Commercial, industrial, retail, and other non-residential properties will not be affected.
- The building allowance or claims on the structure of the building haven’t been modified. “You will still need a Depreciation Schedule to calculate these deductions, Hyde said. “This component typically represents approximately between 80 to 85 percent of the construction cost of a property.”
- The proposed changes aren’t applicable for those who buy property in a corporate tax entity, super fund, or large unit trusts.
- While investors purchasing second-hand property are no longer permitted to claim depreciation on the existing plant and equipment, they will have the benefit of paying less capital gains tax when they sell the property.
“Whilst there has been some merit in regards to these changes, a more balanced approached would’ve been more suitable,” Hyde said. “These changes will create a two-tiered property market in my view, where investors selling near-new property will struggle to compete with those selling a new property.
“Developers should be dancing in the streets, as their stock is now more appealing to investors. I suspect investors may start looking into commercial and other forms of non-residential property. They may also start looking into different structures that haven’t been affected when looking to acquire property.”
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Terry, your friendly mortgage broker