How changes to depreciation will affect investment property
The May budget has seen a number of measures introduced in an attempt to cool the housing market, and part of that are some wide reaching changes to depreciation claims on property.
One bit of good news is that if you currently own an investment property and you exchanged prior to May 9th 2017, these proposed changes will not affect you.
The changes are only aimed at the residential market, non-residential properties such as commercial and industrial are not affected. Furthermore any property that was built after 16th September 1987 can still claim capital works deductions.
One key change is that equipment and plant depreciation deductions will be limited to costs actually incurred by an investor, that is unless an investor has physically bought an item you can no longer claim depreciation. We feel that under these proposed changes it will be the original developer who is deemed to have purchased these items.
Apparently the acquisition of existing plant and equipment will form part of cost base, and reducing any capital gains liability you may have. In essence this makes it less attractive for investors to hang on to some properties long term and they will no longer be claiming depreciation on plant and equipment.
In essence investors who add plant and equipment to their property will be able to claim depreciation, but subsequent owners will not. Investors will still be able to claim capital works deductions, including any additional capital works carried out by a previous owner.
The Government is still to clarify some of the finer points and no doubt there will be some variances yet. How this will affect the property market as a whole will be interesting. Will investors leave the residential market and head to commercial? Will the second hand property market flatten?
We will keep you updated and if you have any queries regarding your investment property please contact Janine.