What, Why & When?

In the Federal budget released on 9th May, the Turnbull Government announced changes that will  'limit plant and equipment depreciation deductions' for residential property investors. 

The purpose of this announcement is to limit the residential investors ability to claim depreciation on plant and equipment for properties purchased after 9th May 2017.  The Government stated that 'investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset.  However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property'.

Most things stay the same.

Changes only impact residential investment properties with no change in the way depreciation is claimed for commercial & industrial properties or the rural/farming sector.  Primary producers and small business remain entitled to accelerated rates of depreciation on a variety of assets and we encourage these clients to contact Mintax in order to maximise these claims.

There will be no change to residential properties purchased or with contracts entered into prior to the budget announcement on 9th May 2017.  Claims for both building works and plant & equipment will remain unchanged.

The draft legislation delivers further good news by confirming new or “unused” residential properties also remain unchanged.  Investors entering into a building contract or purchasing a new property will continue to be entitled to claim both building works and plant and equipment. 

Second hand or previously occupied properties.

For depreciation purposes, the Australian Taxation Office separates plant items (Division 40) and building items (Division 43). The new legislation effectively rules out the ability to claim depreciation on “used” or “second hand” plant items (Division 40) in residential properties purchased after 9th May 2017.  Typical plant items include carpets, drapes, cooking appliances & heating/cooling equipment. However, the legislation still does allow the investor to depreciate the building (Division 43), where applicable.

To highlight the changes in dollar terms, we have prepared two tables below along with a comparative chart. 

Table A displays the amount of depreciation claimed on an existing property purchased prior to 9th May 2017 where both Division 40 & Division 43 are included. 

Table B displays the amount of depreciation claimed on the same property purchased after 9th May 2017 with only Division 43 included. 

The cumulative 10-year claim reduces from $86,765 to $65,000 however clearly demonstrates why a depreciation schedule will continue to be a requirement in order to maximise the available Division 43 claim.

Mintax continues to provide a fresh approach in the provision of depreciation schedules for all types of properties.  Mintax was started to do one thing very well, provide concise, depreciation schedules with transparent and open lines of communication.  Should you wish to discuss any aspect of the changes to residential depreciation please contact us on 1300 826 296 or email admin@mintax.com.au