*This article first appeared in the Midland Express in September 2017
The 2017 Federal Budget announced changes to how depreciation can be claimed on residential properties which could potentially cost some investors tens of thousands of dollars. Some experts claim that these changes while potentially having a negative effect on housing affordability despite these changes being designed to do the opposite.
The measures, announced on budget night, read as follows:
“From July 1, 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans.”
The government expects the changes will save Australia $260 million.
What this means is that the investor can only claim on things that they purchased themselves such as dishwashers, fans or other fixtures, a deduction only possible if they presumably purchased the property new.
But Is this such a big deal?
Investment experts suggest that the impacts to the market might have broader implications then just hitting the pocket of the investor. With investors needing to recoup their costs somehow, the price to recover their expenses will inevitably be passed on to the tenant, all which continues to impact on affordability.
We might see investors now holding onto a property for longer, because they know they won’t get depreciation on their next property.
It is yet to be seen whether these tax changes act as a deterrent for investors but the bigger question for government is what is being done about the supply issue.
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