Blogs
Rental Property Owners Lose Some Deductions - 7th February 2018
Legislation
that came into law in the last half of 2017 makes certain measures first
announced with the 2017 Federal Budget now a reality.
The "housing tax integrity" bill solidifies the government's intention to deny all
travel deductions relating to inspecting, maintaining, or collecting rent for a
residential investment property. As well, second-hand plant and equipment that
came with an investment property are now off the table as far as depreciation
goes.
The
measures will apply from July 1, 2017, so will affect returns for the
current financial year. However the changes to depreciation are dependent on
when assets were purchased (more below).
The
change to travel claims means that travel expenditure incurred relevant to
gaining or producing assessable income from housing premises used as
residential accommodation will not be deductible. The travel expenditure will
also not be recognised in the cost base of the property for CGT purposes.
It
should be noted that the amendments do not affect deductions for travel
expenditure incurred in carrying on a business, including where a taxpayer
carries on a business of providing property management services.
Depreciation change
The government has also
limited plant and equipment depreciation deductions to outlays actually
incurred by investors. In essence, unless you as the buyer have physically
purchased the items, you can no longer depreciate them. In other words, if
otherwise depreciable assets came with the investment property you purchase,
there will no longer be an option to continue depreciating those assets in your
hands.
Being new rules however,
there are calendar dates that may determine if you are affected or not. The amendments will apply from 1 July 2017 for
assets purchased after 7.30 pm 9 May 2017 (when they were announced in the
Federal Budget 2017).
The changes apply to:
- previously used plant and equipment acquired at or after 7.30 pm on 9 May 2017 unless it was acquired under a contract entered into before this time
- plant and equipment acquired before 1 July 2017 but not used to earn income in either the current or previous year.
Investors
who purchase new plant and equipment will continue to be able to claim a
deduction over the effective life of the asset.
Exceptions
A
taxpayer will be able to continue to deduct travel expenditure and depreciate
incumbent plant and equipment if:
- the losses or outgoings are necessarily incurred in carrying on a business for the purposes of gaining or producing assessable income; or
- the taxpayer is an "excluded class of entity".
The ATO explains these as being:
- a corporate tax entity;
- a superannuation plan that is not an SMSF;
- a public unit trust;
- a managed investment trust; or
- a unit trust or a partnership, all members of which are entities of a type listed above.
The
ATO says that its aim is to "improve the integrity of the tax system by
addressing concerns that some taxpayers have been claiming travel deductions
without correctly apportioning costs, or have claimed travel costs that were
for private purposes".
However,
it is also explained that these measures is not intended to affect deductions
for institutional investors in residential premises, as "the same integrity
concerns do not arise for such investors".
AV Chartered Accountants - Committed to Your Business Success
Two convenient locations: