Depreciation takes a hit

Until now property investors could claim depreciation on items such as dishwashers, fans and other fixtures even if they were installed by a previous owner. But proposed federal budget changes mean they will only be able to claim depreciation on plant and equipment items if they either purchased the asset directly themselves or bought a brandnew property.

This may not sound like a big deal but in dollar terms it’s a “massive change to what you can claim,” according to quantity surveying expert Tyron Hyde, from Washington Brown.

In calculating the effects on an investor’s hip pocket, he found that if you buy an apartment built in 2017 for $800,000 after the budget you would be able to claim $110,000 over the next 10 years. Previously you would have been able to claim $140,000.

The changes will be grandfathered, so investors may hold onto their properties longer because they won’t get any depreciation perks on the next investment if they buy an established property.

If you invest in a new property this measure won’t really affect you. You will still be able to claim a deduction for the life of assets that you purchase. This makes new property much more attractive to investors than established property, which you might say is the government’s way of encouraging new housing supply.

However, owners of new properties are also likely to find it harder to sell in future, as prospective investors will be less likely to be able to afford it.

With housing affordability reaching critical levels, particularly in Sydney and Melbourne, investors have been challenged to look beyond their comfort zone for growth spots. If you own, or were considering buying, an investment property outside your own state, unfortunately, you will no longer be able to claim back your travel costs as a tax deduction.

However, you will still be able to claim deductions for expenses incurred by third parties, such as real estate agents for their property management services.