2017 Budget Comment – Confusion Still Reigns

Frustratingly, there's still no word from the Government/ATO in relation to the proposed Budget changes to plant and equipment depreciation for residential investment properties.

In the meantime, confusion still reigns in property investment circles as investors get caught up in other people's agendas.

As mentioned in a previous Blog, the concept of what is new did not change overnight on 9 May 2017.  What happened was a handful of people decided to cloud everyone's judgement by introducing the concept that the developer is the first owner thereby implying that those buying new residential properties from developers would forego any depreciation entitlements under the proposed changes.

If your judgement has been clouded, and you remain confused, I want you to consider the following and make your own judgement on the direction you think the Legislation will go in relation to claiming plant and equipment (Division 40) depreciation on new investment properties acquired from a developer:

Firstly, if you go to the "Guide to depreciating assets" (ATO Publication) the very first paragraph states "you may be able to claim a deduction (depreciation) for the decline in value of the cost of capital assets used in gaining assessable income". A Developer does not gain assessable income from the asset nor does he use the asset! Therefore, the developer is not entitled to claim a depreciation deduction for the decline in value of the asset. The developer presents the asset as new (unused) to the purchaser of the unit.

Secondly, if the Government is going to regard developers, retailers, suppliers, sub-contractors, builders, etc as the first owners then they may as well introduce a policy that eliminates plant and equipment depreciation altogether for property investors because that would be the end result. For, even if you have a contract with a builder to construct a house, you're still not the one physically walking into Harvey Norman Commercial and handing over the cash to buy the appliances (for example) i.e. the sub-contractor/builder is doing that and retains ownership of those goods until you make the final payment.

Finally, understand the agendas of those who have put forward this imaginative concept (that the developer is the first owner) and that they, most likely, object to the proposed changes and have put forward this notion to gain public support opposing the changes.