On the 9th of May 2017, the Federal Treasurer Scott Morrison announced in his budget a proposal that will change aspects of Property Depreciation. After a period of public consultation, input from companies such as Write It Off and debate in the senate new legislation was passed 15/11/17 and applies from 1/7/17.
These changes do not effect:
Remember, you can still claim the Div. 43 capital works allowance which represents approx. 70 – 90% of your claim under the old rules.
If you are thinking of buying a 2nd hand property as an investment then there are a few main points to consider.
With these 4 points considered, you need to think through your own investment strategy to understand which property best suits your needs. It is important to not just buy a property based on what tax benefits you receive, it's part of the equation but should not be a definitive reason of what to purchase. Other considerations include potential rental yield, potential for capitals gains, maintenance costs & upkeep costs.
Potential impacts on the property market:
The budget proposal came under the auspices of Housing Tax Integrity Bill. Its main focus was to stop property owners potentially claiming depreciation on plant and articles assets under Div. 40 that had previously been depreciated before by former owners. Thus limiting depreciation on plant and articles to only brand new assets either part of a new property or installed by the owner for investment purposes.
We believe that in the long run it will. Driven purely by the amount of their potential depreciation claim, property investors may now be more inclined to buy only buy brand new properties thus increasing demand in this part of the market. But what happens when it comes time to sell it? Well, as it is not as appealing to a property investor because it is now a 2nd hand property the market is potentially halved to owner occupiers only. This can only decrease demand and lower any potential sale value. This is a direct outside influence on the free property market and can only hurt the property industry. Furthermore, investors may not see property as the ideal option for investing and rental stock may start to decline. In the end rental yields will rise but those who are trying to transition from renters to property owners are now only going to find this all the more difficult. We will have to wait and see the true impacts of this new legislation, but it will take a long time before we know. In meantime considerable damage could have been done and the main negative impact could be on those who can ill afford it most. Low income earners in the rental market and first home buyers trying to get into the property market which is what the government is trying to avoid.
If unsure about any of the aspects discussed in this article, then please speak to our office on 1300 883 760 or firstname.lastname@example.org
Written by Steve Wynn BEc ANU