De­pre­ci­a­tion takes a hit

Money Magazine Australia - - IN BRIEF -

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.

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