I have been surprised. Australia’s national sport is not AFL or Football. It’s residential property! Everyone participates; whether you have a mortgage, own outright, rent or are an active investor, every Aussie has an opinion on the state of the property market. Its become our national obsession. So it surprises me that some of the most important changes to residential investment have passed federal parliament and very little if anything has been made of it in the media. Did you read about it? There was no outcry that “the world was going to end” or that “you better get in now before its too late”. Whats the world coming to when the media won’t report these changes let alone overreact!
In all seriousness, the changes to depreciation benefits associated with residential property is some of the most profound I have seen. In case you missed it, federal parliament passed legislation that will affect depreciation benefits on residential property. So below is a good summary of what this new legislation will mean and what to ask your accountant.
If you acquire a second-hand residential property after May 10, 2017, which contains “previously used” depreciating assets, you will no longer be able to claim depreciation on those assets.
Acquirers of brand new property will carry on claiming depreciation exactly the way they have done so to date. This is great news for the property industry and the way it should be.
The proposed changes only relate to residential property. Commercial, industrial, retail and other non-residential properties are not affected in the slightest.
The building allowance or claims on the structure of the building has not changed at all. You will still need a Depreciation Schedule to calculate these deductions. This component typically represents approximately between 80 to 85 percent of the construction cost of a property.
The proposed changes do not apply if you buy the property in a corporate tax entity, super fund (note Self-Managed Super Funds do not apply here) or a large unit trust.
Perhaps the most interesting point: Whilst investors purchasing second-hand property can now no longer claim depreciation on the existing plant and equipment, they will have the benefit of paying less capital gains tax when they sell the property.
All in all, a pretty good move by the federal government; support the construction of new homes and add to the housing supply while looking after existing landlords. It’s good for tenants, its good for landlords and its good for the economy.
Though, I suspect residential investors will start looking into companies as their preferred asset holding structure. This asset holding structure means nothing has changed.
So what do you think? How is this going to affect you?
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