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Update: Draft legislation on depreciation rules released

We recently blogged about the Federal Government’s 2017/18 Budget and what changes it brought to depreciation rules on investment properties. At the time of writing, the government was still finalising the legislation. This month, the draft legislation was released and we’re pleased to say that it’s cleared up some confusion for investors.

To recap, here’s the key information that you need to know:

  • The changes don’t apply to commercial or brand-new residential properties.
  • The changes don’t apply to building depreciation.
  • The changes do apply to used residential investment properties purchased after 7:30 pm on 9 May 2017. ‘Purchase’ is generally defined as the date you put down a deposit on your investment property and contracts are signed and exchanged. So if you purchased a residential property before this date, you won’t be affected.
  • If you buy a second-hand investment property, you’ll no longer be eligible to claim tangible depreciating assets, also known as ‘plant and equipment.’ But, in many cases, there’s still plenty to claim on the building itself. You may also claim any assets that you purchase and add to the property after purchase. 

The good news: You can reduce your CGT

The depreciation that you could have claimed on the assets in your second-hand investment property under the old rules can now be tallied up and deducted from the profit when you sell the property. This reduces your Capital Gains Tax (CGT). But, for your accountant to know how much they can reduce your CGT by, the assets need to be valued when you buy the property.

Invest in a depreciation schedule before you submit your tax return

If you bought an investment property in the last year or so, it’s worth getting a depreciation schedule. If you wish to reduce your CGT, you must do this before visiting your tax accountant to submit your return. Don’t wait until the last minute, as the depreciation assessment process could take up to a month to complete.

There are many companies that offer tax and depreciation schedules – including one that we use called Depreciator – that you should include in your personal and company tax returns. These services are usually 100% tax-deductible, so it’s worth taking the time to find out exactly how much you may claim.

Get in touch

If you have any questions, or wish to talk to us about income tax returns for individuals, companies, trusts, or managed superannuation funds, please contact us.