It is now a week since the Federal Budget was released, so we have had a chance to consider the changes and seek clarification of the details from the Government before updating you all today. Please read on for the important changes you need to know about…

In Short… 2017 Changes to Allowances.

  • Depreciation to plants and equipment claimable by owner who incurred the cost for the items only
  • Deductions for travel expenses relating to maintaining, inspection or collecting rent for a residential property disallowed

Please note: Depreciation on the building itself and improvements made is still claimable

Quantity Surveying Services Australia-wide, including Real Property Matters, have been such a key role in saving property investor’s money at tax time through depreciation, that the Government is making changes to reduce some of the depreciation that can be claimed. It seems we have been doing our job too well!

As many of you may be aware, this intention was made public during the presentation of the 2017/2018 budget by Treasurer Scott Morrison last Tuesday evening (9th May 2017).

“From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties.”  2017 Budget Paper No. 2

The intention is that, from July 1st, depreciation to plant and equipment will only be able to be claimed by the owner who incurred the cost for the items. It is also assumed that this will be the case  for owners of brand new properties, but the details are still to be confirmed following ongoing legislation by Parliament in the next few weeks.

The cornerstone of depreciation on investment properties is claiming depreciation on the building itself (walls/roof/floor etc.) including improvements made by previous owners. This is still the primary item that we identify and depreciate and this remains the same.

ReadQuantity Surveying a must have for your investment property for more information around capital works deductions.

How will this affect you?

The good news is, all existing homes will be grandfathered and new legislation will only affect those properties not already under contract by 9th May 2017 at 7:30pm.

There is no doubt these changes will affect how much a property investor can claim back initially throughout the first few years of claiming depreciation, if they continue to buy existing homes as they have done in the past.

The Government will also disallow all deductions for travel expenses relating to maintaining, inspection or collecting rent for a residential property, so an annual inspection of the Gold Coast Property in mid-July is now no longer an option – unless you can pick up the tab yourself.

We would only be like every other so-called expert if we tried to predict what these changes will have on traditional investing strategies, so we will simply recommend you wait and see. We can however, tell you that the Government is trying to direct property investors into building properties and purchasing in new estates away from the more established areas. In our opinion, this will drive the property investor head to head against the First Home Buyers, maybe the very people they are trying to help.

This budget has brought many changes but we like to think that with change comes opportunity.  The team at Real Property Matters will keep you informed as further details become available in the coming weeks, so stay tuned.