{"id":14214,"date":"2017-10-13T07:00:59","date_gmt":"2017-10-12T20:00:59","guid":{"rendered":"http:\/\/www.realestatetalk.com.au\/?p=14214"},"modified":"2017-10-13T07:00:59","modified_gmt":"2017-10-12T20:00:59","slug":"how-new-changes-to-depreciation-impact-investors","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/how-new-changes-to-depreciation-impact-investors\/","title":{"rendered":"How New Changes To Depreciation Impact Investors"},"content":{"rendered":"

The announcement of changes to depreciation in the 2017 Federal Budget surprised everyone, especially investors in the process of buying property right now. Tyron Hyde from Washington Brown walks us through the changes, and how they will impact you.<\/strong>
\nThe property market is in a state of limbo, particularly those involved in the selling of new property.
\nWhy? Because the budget statement in relation to helping \u201creduce pressure on housing affordability\u201d has potentially changed the game and introduced dramatic changes to the way depreciation is claimed on property.
\nLet\u2019s start with the good news:<\/strong>
\n1. Any existing investment properties purchased (contract exchange date) prior to 7.30pm on Tuesday, 9 May 2017 are not affected.
\n2. Commercial, industrial and other non-residential properties are not affected.
\n3. Capital works deductions have not been affected. This means you will still be able to claim depreciation on the structure of the building, provided it was built after 16 September 1987. You will still need a quantity surveyor\u2019s depreciation schedule in order to do so.
\nNow that we know what isn\u2019t affected, let\u2019s look at what has changed as a result of the new budget.
\nAccording to the budget statement:
\n\u201cFrom 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be \u2018easily\u2019 removed from a property such as dishwashers and ceiling fans.\u201d<\/p>\n

“Here\u2019s the uncertainty: Who actually acquired the plant and equipment? Was it the builder\/developer, or the initial purchaser of the new property?”<\/em><\/h2>\n

Why is the government making these changes?<\/strong>
\nAccording to the budget statement: \u201cThis is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value.
\n\u201cAcquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.\u201d
\nIn summary: if a residential property was built prior to 1987, depreciation can no longer be claimed \u2013 full stop. If built after 1987, only the construction costs can be claimed.
\nHere\u2019s the uncertainty: Who actually acquired the plant and equipment? Was it the builder\/developer? Or was it the
\ninitial purchaser of the brand-new residential property?
\nThis is key \u2013 and the answer is up for debate.
\nThe industry needs urgent clarification on this matter as many agents are currently advising potential buyers on the cash flow advantages of new property. These figures may prove to be inflated and put the developer or marketer at risk further down the line.
\nInvestors rely on these figures in assessing the merits of the investment.
\nDevelopers, project marketers and property sales agents \u2013 if you are selling property and using depreciation numbers that include plant and equipment, you should stop now! This element needs to be removed from the selling equation, at least until the legislation is finalised.
\n\"\"
\nA possible solution<\/strong>
\nAs you can see from the \u2018Before and after\u2019 example on the previous page, these changes won\u2019t completely wipe out your depreciation benefits. In our example, an investor buying a brand-new property will still be able to claim $110,000 in depreciation over the first 10 years under the new rules, as opposed to $140,000 in depreciation claims under the previous rules.
\nThe value of depreciation deductions available on any property depends on its size, quality, condition and age, but as a general rule these changes mean buying new property offers a much greater depreciation benefit than buying established properties.
\nIndeed, properties built prior to 1987 will generate no depreciation benefits whatsoever.
\nThe government\u2019s changes to depreciation are quite drastic change, in my view, and a more suitable solution would be to accept that plant and equipment in residential property needs to run its natural course.
\nThe ability to revalue and reassess the item after its initial effective life has run its course should be squashed.
\nPut simply, if you a buy a property that is, say, 11 years old, and it has a dishwasher installed that had an initial effective life of 10 years, then you should not be able to claim it, revalue or reassess it.
\nThis would alleviate the government\u2019s concern that \u201csome plant and equipment items are being depreciated by successive investors in excess of their actual value\u201d.<\/p>\n

“A more suitable solution would be to accept that plant and equipment in residential property needs to run its natural course”<\/em><\/h2>\n

This would make a lot more sense, in my opinion. I believe housing affordability is a major issue; however, this appears to be \u2018policy on the run\u2019, so the government can be seen to be targeting property investors. I look forward to providing a further update once the legislation is finalised and more specifics of these changes come to light.
\nTyron Hyde<\/em><\/strong> is a director of quantity surveying\u00a0firm Washington Brown and has over 20 years\u2019\u00a0experience in the construction and development industry.<\/em>
\nFor more articles like this, visit\u00a0www.yourinvestmentpropertymag.com.au<\/a>
\nOriginally published as: http:\/\/www.yourinvestmentpropertymag.com.au\/tax-strategy\/how-new-changes-to-depreciation-impact-you-239450.aspx<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The announcement of changes to depreciation in the 2017 Federal Budget surprised everyone, especially investors in the process of buying property right now. Tyron Hyde from Washington Brown walks us through the changes, and how they will impact you. The property market is in a…<\/p>\n","protected":false},"author":176692471,"featured_media":14216,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[13,31],"tags":[70],"class_list":["post-14214","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-latest-story","category-your-investment-property","tag-featured"],"yoast_head":"\nHow New Changes To Depreciation Impact Investors - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/how-new-changes-to-depreciation-impact-investors\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How New Changes To Depreciation Impact Investors - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"The announcement of changes to depreciation in the 2017 Federal Budget surprised everyone, especially investors in the process of buying property right now. 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