Restricting Residential Investment Property Deductions

Although the Government has not specifically targeted negative gearing, they have introduced several measures to restrict tax deductions in respect of residential investment properties.

Firstly, travel expenses to and from your residential investment property to inspect, maintain or collect rent will no longer be tax deductible after June 30, 2017.  This measure has been introduced because some landlords have been combining private trips with their rental property management and not correctly apportioning their costs to exclude the private portion of the travel expenses. As such, this is the last financial year that travel expenses associated with your residential property management will be tax deductible. A trip to inspect your property planned for July 2017 should be brought forward to before June 30, 2017 to get a tax deduction. This measure does not apply to commercial property landlords or to residential landlords who engage real estate agents to perform property management services.

The second measure relating to investment properties is the limitation of depreciation deductions on removable type assets, typically plant and equipment, acquired with an existing residential investment property. Depreciation deductions will only be available for newly acquired assets, where the property owner directly incurs the expenditure. This new measure will apply from July 1, 2017 (for plant and equipment acquired after 9 May 2017)

Under this measure, the entire purchase price will be allocated to the property’s cost base for capital gains tax purposes, rather than being apportioned between the property and removable assets such as carpets, dishwashers and air-conditioning units. Historically, the allocation of the purchase price between the property and the component assets would normally be performed by a qualified quantity surveyor. This new proposal will not affect investors who already hold residential properties prior to 7:30pm (AEST) 9 May 2017.

Investors that purchase plant and equipment for their residential property after 9 May 2017 will be able to claim the depreciation deduction over the effective life of the asset. However, subsequent owners of the property will not be allowed to claim deductions for plant and equipment purchased by the previous owner. The plant and equipment costs will be reflected in the cost base for capital gains tax purposes.

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Other Articles in This Edition:

Some of the Biggest Mistakes Small Businesses Make With Their Websites
Federal Budget – Economic Summary
Small Business - $20k Small Business Immediate Tax Deduction
Small Business - Company Tax Rates
Small Business - Extension of Taxable Payments Reporting to Courier and Cleaning Industries
Small Business - Access to CGT Concessions
Small Business - Looking to Employ Foreign Workers?
Individual Tax Rates
Individuals - Changes to the Medicare levy
Individuals - Higher Education Reform  
Superannuation - Contributing Proceeds from Downsizing to Superannuation
Superannuation - First Home Super Saver Scheme
GST Changes - Purchasers to Pay GST on New Residential Premises
GST Changes - Digital Currency & Low-Value Imports
Tax Integrity Measures

DISCLAIMER: This document contains general advice only and is prepared without taking into account your particular objectives, financial circumstances and needs.  The information provided is not a substitute for legal, tax and financial product advice.  Before making any decision based on this information, you should speak to a licensed financial advisor who should assess its relevance to your individual circumstances.  While the firm believes the information is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk.  The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.