Housing Tax Integrity – Limiting Depreciation Deductions – Exposure Draft Released

On 14 July 2017, the Australian Government released an Exposure Draft Legislation formalising the proposed changes introduced in the 2017 Budget.

For a full transcript, please follow the link:

http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2017/Disallowing-travel-deductions

At first glance, there appears no real surprises and the debate over ‘what is new’ is finally put to rest. Those residential property investors buying new (previously unoccupied) properties need not worry as their entitlements to claim Division 40 plant and equipment depreciation remain as per the following extracts from the Release and the Explanatory Notes:

“The Government will limit plant and equipment depreciation deductions for investors in residential investment properties to assets not previously used.”

“Often developers will acquire and install various depreciating assets in the course of constructing or substantially renovating residential premises. In some cases the property may already have an owner, but in others, the developer or other entity may hold the land and it will not be sold until after construction and installation. In these situations, in which a new asset is installed in new premises, the value of the asset has not yet declined and there is no risk of the valuation of the asset for the purposes of depreciation being refreshed. Accordingly, the amendments do not apply to an asset installed in new residential premises (including substantially renovated premises) if no entity has previously been entitled to any deduction for the decline in value of the asset and no one has resided in the premises in which the asset has been used.”

Example 2.1 of the Explanatory Notes also clarifies items acquired second-hand. In this example, a washing machine is acquired second-hand from a friend and installed within a rental property. Following the ‘not previously used’ analogy, the property owner is not entitled to depreciation of the washing machine because it is previously used.

Public consultation on the exposure draft legislation and explanatory material will run for four weeks, closing on Thursday, 10 August 2017. Refer above link for more information.