Well it’s been just over a year since the Australian Federal Government passed a number of changes affecting owners of income producing properties including changes to rental property travel expenses, and residential property depreciation. So 12 months on Brad Beer joins us with some information about the impact of the changes.
Transcripts:
Kevin:   Well it’s been just over a year since the Australian Federal Government passed the treasury laws amendments housing tax integrity bill of 2017. That’s a mouthful. Within the bill were a number of changes affecting owners of income producing properties including changes to rental property travel expenses, and residential property depreciation. The changes to property depreciation were perhaps the most significant change to tax depreciation laws sine the 1980s. Today talking about that is Brad Beer, the chief executive of BMT tax depreciation. Brad how are you?
Brad:   Great Kevin and great to be here as always.
Kevin:   Yes. Happy New Year, first time we’ve spoken in 2019. Hey Brad, let’s talk about the results, these changes they’re having on investors and the property market and also I would like, if we could, discuss what BMT data shows in terms of the deductions that you’re still finding for your clients.
Brad:   Yeah, for sure.
Kevin:   Okay. Well mate, for those who aren’t aware, what changes were made to depreciation legislation in 2017?
Brad:   Yeah. Look the …. we’ll keep it simple, but in 2017 they as part of the integrity cleanup of things that they thought investors were claiming when they shouldn’t, on things like travel allowance, etc. They also had this little one in there for depreciation changes. They went and had a look at the plant equipment that’s claimed in a residential investment property and basically said that you can no longer claim on second hand or previously used plant equipment items. Which are things like the carpets, the stoves, the blinds, the curtains that we used to make a claim for if they were second hand there is no longer an ability to claim for those things on a second hand property.
Brad:   Depreciation has got two components. One is the structural part of the building. No changes to that one, that’s exactly the same, that’s 2.5% of the actual construction cost as long as it gets billed by the date. But the other piece where you used to claim against a second hand stove or curtains, all those things are no longer able to claim against those. Now if it’s new, you still get to claim against those things, but second hand properties they knocked that out. So no more claims which was really odd, but anyway they knocked it out. They make their rules right.
Kevin:   Yep. That’s right, that’s exactly right. I remember at the time too, when you and I were talking, I know you’re on a plane quite often talking to the government, there were many changes. Over time, I guess you really get to see the impact, so who was affected and what can still be depreciated?
Brad:   The people that are affected are those … anyone who’s bought a second hand residential property or exchanged it after 7:30 on the 9th of May 2017, when they changed it. Those people are now affected by this change and can’t effectively claim as much depreciation or claims against their property as they used to be able to before that. Now look, they are the only people that are affected, everybody else, commercial property owners, buyers of a new property aren’t affected. People that buy properties and then add things at a later date, if you buy things you’re still able to depreciate them. If you buy a new stove, year after you buy the property or just straight after you buy the property then you get to claim the depreciation as it was.
Brad:   But it’s just those people that have bought a second hand property that the rules have changed for.
Kevin:   Yeah. Yeah. What change has occurred in the property market over the last year, Brad?
Brad:   It hasn’t had the best time, really, because continuing drops, well Sydney especially have had some drops over that period of time. I think the average dwelling is 4.1% across the whole nation. Sydney’s medium dropped 8.1%, Melbourne 2.6%, Perth, Darwin 4.2 and 8% respectively. We’ve had some of the a slower market due to many things like the difficulty of people to get money and settle, and the changes to overseas investment. A bunch of things that have just cooled off our market over that period of time.
Kevin:   Do you … how much impact do you think the legislations’ had? How much of it’s responsible for these changes do you think?
Brad:   I don’t think the depreciation changes makes a major difference because people still crunch their numbers. We’ll get them the numbers at the moment, but they’re still substantially deductions there. It’s a bit less, but I don’t think just that depreciation changes a major reason for people to change their decision. I think depreciation shouldn’t be the only reason for buying a property in the first place. It’s just a cash flow issue that you should work out and there’s still a fair bit of cash flow change for people that have bought after those changes.
Kevin:   Well just on that topic, are there any areas bucking the trend that investors should consider in your opinion?
Brad:   Well, I guess on the numbers, Hobart Tasmania over that year still actually grew, so had 9.3%, now it’s had a fair bit of growth over that period of time compared to those obviously. Canberra was still fairly strong through the year, 4% up until November 18. Regional towns still performed okay, some of those places like Tamworth, Hunter Valley.
Kevin:   Yeah.
Brad:   Some of those places still performed okay over the last year. That’s not a crystal ball, that’s the past.
Kevin:   Yeah. Oh yeah that’s right, exactly. Yeah. Brad just to wrap this up, talking about those changes to legislation, what does BMT’s data show in terms of average depreciation claims that the investors are following?
Brad:   So those changes as we’re saying is affecting those that buy second hand property, but the data that comes thats probably most interesting to say that there’s still deductions there I guess is in the year before they made those changes, the average first year claim out of our depreciation reports and they were something like 65 to 70,000 of them we did. So it’s based on a large number, was just under $10,000 in that first year. So in the year after, across all of our reports the first years claim was about $8,900, so that’s a slightly less deduction across all of them. But the ones that are affected by this budget change directly out of those in that financial year are still over a bit of $5,000 in deduction in the first financial year by all of the reports we did in the year after the change was made. So still substantial deductions available and the data shows that there’s still some numbers there.
Kevin:   Yeah.
Brad:   Just to be found.
Kevin:   Yeah. Absolutely. Well Brad fresh into the new year, 2019, great to catch up with you. Again, look forward to chatting to you again as the year progresses and we’ll see what changes are ahead of us.
Brad:   As always, thanks Kevin.