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Investment Properties: Depreciation & Claims Changes

There are a number of recent legislation changes regarding claims on investment properties. Taxpayers who owns investment properties should be aware of these changes so that they don't include claims that are not eligible for tax deductions any more.

The changes aim to balance the power slightly between investors and home owner occupiers and instead target investment in the creation of new accommodation and housing. The targeted attention on new properties to be rewarded has implications on new investments while not punishing retrospectively for those whom already hold investment properties.

Depreciation Claims

First of all, investors who purchased brand new investment properties or brand new plant and equipment will still be allowed to claim depreciation/capital allowances as tax deductions for their investments properties. However, previously used plant and equipment acquired at or after 7:30 pm on 9 May 2017 will not be allowed for depreciation deductions any more. In addition, plant and equipment that are purchased prior to 1 July 2017 but never used for income producing purposes are also not allowed for tax deductions. These changes are implemented from 1 July 2017.

Example 1 - Newly Built Investment Properties

Mary purchased a brand new investment property on 1 August 2017. She also purchased brand new furniture to rent out as part of the rental package. Mary can obtain a depreciation schedule/quantity surveyor's report from a qualified quantity surveyor for this investment property. She can claim the depreciation/capital allowances of the investment property as well as the depreciation value on the furniture that she purchased.

Does meet criteria

Example 2 - Newly Purchased Investment Properties after 2017

Grant purchased a house for investment purposes on 30 September 2017. This house is 15 years old. In order to increase the rent value, he also purchased some second-hand furniture such as dishwasher, washing machine, etc. In this case, Grant can not claim depreciation/capital allowances on the house as it is an existing property. Grant also cannot claim depreciation on the dishwasher, washing machine etc as they are used assets.

Doesn't meet criteria

Amy purchased an investment property on 1 May 2015. She has been renting the property out since the settlement date. Amy is allowed to continue to claim any depreciation/capital allowance on the property as this property was used for income producing purposes prior to 1 July 2017.

Does meet criteria

Travel Expenses

Starting from 1 July 2017 the costs for travel to meet with real estate agents or inspect an investment property will no longer be claimable unless you are carrying on a business of property investing or are an excluded entity.

Owning one or more investment properties does not qualify tax payers to be carrying on the business of property investing. A business of property investing has particular business structures and profit making undertaking purposes.

The changing nature of taxation and accounting means it is always handy to consult a qualified and talented accountant when completing your tax. Please consult us for further information as you require it.

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