The New Legislation - What Are the Changes, and Who Is Affected?

As the Treasury Laws Amendment Bill 2017 was passed on the 15 of November 2017, important changes were made to the Income Tax Assessment Act 1997. It now denies property investors from claiming income tax deductions for the decline in value of ‘previously used’ depreciating assets, Division 40 (Plan and Equipment), within residential investment properties.

This means that any owners who purchase a second-hand residential investment property who have exchanged contract after 7:30pm on the 9th of May 2017 will not be able to claim tax depreciation on existing Plant and Equipment. Note, that this legislation does not affect Division 43 (Capital Works) in any way - you may still have a good chunk of assets to claim.

The list of exceptions is long and includes:

• Owners of brand-new residential properties

• Residential property investors who exchanged contracts prior to 7:30pm on the 9th of May 2017.

• Non-residential/commercial properties

• Public unit trusts and managed investment trusts

• Corporate tax entities including properties held under company entities

• Superannuation plans (other than self-managed super funds) that hold residential property

• The amendments do not affect deductions that arise in the course of carrying on a business

For renovations, all additional work completed by the current owner of the property, and is classified as capital improvements (substantial renovation works) can be tax depreciated and claimed as usual. If you would like to know more about the renovations and depreciation, read our post: Renovations and Depreciation - Setting the Record Straight.