The government is planning to “reduce pressure on housing affordability” by proposing dramatic changes to the ways depreciation is claimed on property. While these changes bring both good and bad news, it is important for investors to know how they can maximise tax deductions amid the possible implementation.
Residential properties will be affected once the changes have been implemented, while commercial, industrial and other non-residential properties, as well as capital works deductions and any existing investment properties acquired before 9 May 2017 will not be affected.
Washington Brown’s CEO Tyron Hyde advises all investors who have acquired properties prior to the stated date to get their depreciation numbers as soon as possible.
“You have to be certain. It’s a golden opportunity, really. We would go to the property, and we’d assess what happened two years ago at that property when you settled on it, for instance. You would then give that report to your accountant, and he may amend your tax returns, or he or she will amend your tax returns for the past couple of years. There’s still that opportunity there to go back and make amendments, which maybe people will focus their mind on now,” he told Smart Property Investment.
On the other hand, developers and sales agents must refrain from indicating depreciation numbers that include plant and equipment on the selling equation until the legislation is finalised.
Under the new tax depreciation scheme, the government will limit plant and equipment depreciation deductions to outlays obtained by investors in residential real estate properties to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value.
Mr Hyde said: “The plant equipment component that you buy as part of your property, that will now reduce your taxable income when you sell it — your capital gains tax. But if you never sell the property, you might never get any benefit of it.”
Lastly, both Mr Hyde and the Smart Property Investment's Phil Tarrant encourage everyone to avoid miseducation and, if things become a little too complicated, remember the fundamental benefits of purchasing a property and the most basic definition of a good investment.
Changes in tax benefits will continue to happen over time and investors definitely have to keep track, but at the end of the day, it all comes down to the basics — a good investment is something that will go up in value over time and will cost as little as possible to hold.