Investment property tax deductions hit the headlines when the 2017-18 Federal Budget was handed down on 9 May 2017.
As the second biggest tax deduction after interest, depreciation deductions against investment properties save investors thousands of dollars and can make or break the profitability of a property investment.
By claiming a tax deduction for the wear and tear of capital works (structural elements such as concrete and roof tiles) and plant and equipment components (such as curtains, bathroom fittings and screen doors) a property investor can significantly reduce their taxable income, and their annual tax bill.
Tax depreciation deductions have been boosting investors’ cash flow for years, however changes introduced in the 2017-18 Federal Budget will limit depreciation claims on investment properties purchased after 9 May 2017.
According to the new guidelines, a property investor will no longer be able to claim depreciation on plant and equipment assets installed by a previous owner. Only components that you have purchased yourself will be claimable.
Properties purchased before 9 May 2017 will be unaffected by the changes.
What deductions can you claim against a property purchased after 9 May 2017?
Depreciation of the actual building is still claimable. Your Quantity Surveyor will still be able to prepare a tax depreciation schedule to ensure you claim all tax deductions you’re entitled to.
Renovation costs and plant & equipment assets you’ve purchased yourself
Similarly, your Quantity Surveyor can list any renovation costs and include them in your depreciation schedule. New assets you purchase yourself – dishwashers, blinds etc – should also be included in the depreciation schedule and claimed at tax time.
Everything – if it’s a newly built property
Brand new property? No problem. The Federal Budget changes only affect second-hand properties so you’ll be able to claim both capital works and plant & equipment deductions as usual.
So how will these changes affect the property market in general?
Experts predict property investors will hold investment properties for longer periods and they may also shift focus towards newly-built developments and commercial investment property opportunities.
Luckily, property investment is a long term game. A savvy investor can plan ahead by maximising tax deductions that ARE permitted while enjoying capital growth in what is still a strong property market. Speak to your Quantity Surveyor about how you can maximise depreciation as part of your investment property strategy.