The federal government has recently announced some proposed changes to plant and equipment deductions for businesses. It’s important to consider what these proposed changes entail, and how they could affect people looking to invest in residential property.
The federal government has been openly discussing the aim of developing fair policies which cover all necessary facets. These changes were implemented on 1st July 2017, but whether the effects are being felt already, is yet to be noted.
With potentially confusing changes taking place, let’s have a look at the proposed changes to legislation.
The Changes – A Summary
- Owners of a second property who exchange contracts after 9th May 2017, will not be able to claim for deprecation on existing equipment and plant assets.
- Whilst there is no mention of new properties, it’s expected that investors will be allowed to depreciate new plant and equipment assets. On that basis, this will continue as normal.
- Additional assets included in a property will still be allowed to be depreciated as normal.
- Investors are expected to be allowed to continue claiming capital works deductions. These include deductions available on the structure of a building – including additional capital works carried out by themselves or a previous owner. These deductions will be available for properties constructed after 16th September 1987.
What Is Plant Equipment?
It’s all well and good talking about plant and equipment, but just what does that entail? Australian federal law defines them as “easily removable or mechanical assets found within an investment property”.
Examples may include air conditioners, water systems, smoke alarms, trash cans, curtains etc. The Australian Tax Office provides individual rates which can be used to calculate the rate of depreciation over time for plant and equipment.
Who Do the Changes Effect?
The changes will mainly affect property investors who exchanged contracts on a second residential property, after 7:30pm on 9th May. The new rules however, would not have come into force until after July 1st 2017.
How Will Investors Be Affected?
Investors who exchanged contracts after this time, will only be able to claim plant and equipment depreciation on assets that they purchase and install in a property themselves. This prevents investors from gaining from assets that they did not pay for in the first place.
Investors who purchase a second property will be able to contact a quantity surveyor, in order to discuss possible deductions that they may claim for in terms of capital works.
Who Won’t Be Affected By The Changes?
Owners of brand new residential properties who exchanged contracts after 9th May, will not be affected. Owners of residential properties who exchanged before 9th May, will also not be affected.
Commercial property owners can continue to trade under the same previous set of rules – as the implemented changes are only going to affect the residential sector.
Home owners will be unaffected, as the changes only impact on income producing properties. If however, you decide to turn your primary residence into a money-making property, you will no longer be able to claim depreciation on plant and equipment within the property.