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The measures introduced in the budget to adjust depreciation legislation in a bid to prevent investors “double dipping” is “going beyond its original intent,” according to one depreciation specialist.
Tax change 'goes too far' for property investors
23 May 2017
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6 minute read
The federal government proposed changes to depreciation legislation in the 2017 budget that are due to come in to force on 1 July 2017.
The changes mean that investors who acquire a property after 9 May 2017 will not be able to claim depreciation on existing plant and equipment assets in the property. Those who purchased an investment property before 9 May 2017 will be able to claim depreciation as per normal.
Speaking to Accountants Daily, BMT Tax Depreciation CEO Bradley Beer said the measure is looking to prevent investors from exploiting a gap in the legislation and claiming deductions on assets that have already been depreciated.
“I think their intention is to stop people from double dipping because the legislation has a bit of a gap I suppose across plant equipment items where people can depreciate something that's already been depreciated,” he said.
“So they're trying to stop the double dipping issue but they've actually gone a bit further than that, where they're stopping anyone from claiming on second-hand property any deductions for the plant equipment that they didn't purchase themselves.”
Mr Beer expressed concern that what the government is proposing goes beyond the intent of what they’re trying to do.
“I think it's going beyond that intent to attack any investor who buys a second-hand property because it applies to positively-geared properties and negatively-geared properties, it applies to all of the assets in a second-hand property that could be nearly new, meaning they should still have an effective life,” he said.
“I think it's going beyond the original intent of getting rid of the double dipping type arrangements as an integrity measure.”
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- They could have solved the double dipping quite simply by only allowing a subsequent owner to claim depreciation deductions if they (continue to) use the previous owner's depreciation schedule.0
- So the changes come in on 1st July 17 (2018 Financial Year) So if you purchase a property now post budget night, but before 1/07/17 do the existing rules come into play?
0- Effective date for this change is Budget night, 9 May 2017.0
- And now there are rumours they want to cap accounting fees for certain entities. Very discriminatory - one size does not fit all. Next it will be planning fees which are capped. Be warned! The tax system/ASIC legislation is very complex and whilst people can self-prepare, there is a pseudo- endorsement to use professional services.
Where? I did a search and couldn't find anything. Have you heard something definite??0- Labor have it as a proposal to limit the level to which people can use accounting fees to reduce their personal taxable income. Based on the reports of 40 or so individuals with assessable incomes of over $1M who claimed tax advice deductions of around $1M each to arrive at zero taxable income.0
- Lucky accountants!0
- What they should have done is make sure that any initial plant purchased with the property was deducted from the cost base of the property - that would have stopped the double dip. Very unfair to QS providers as this come out of the blue and will have eroded quite a portion of their businesses courtesy of the budget. And now there are rumours they want to cap accounting fees for certain entities. Very discriminatory - one size does not fit all. Next it will be planning fees which are capped. Be warned! The tax system/ASIC legislation is very complex and whilst people can self-prepare, there is a pseudo- endorsement to use professional services. So it is not the consumer's fault in any of these instances, it is the law-makers. It seems that policies are not well-thought-through and something which could be fixed simply ends up being a legislative nightmare and administrative hell! Commiserations to the QS providers!0
- Bradley is spot on here0
- could it be that a source of income for doing depreciation schedules has been cut off, oh poor dear.0
- I hate to disappoint those who see these proposed changes as the end to the need for Tax Depreciation Schedules prepared by Quantity Surveyors(QS).
The main reason you require the services of a QS is to claim the Division 43 capital allowances (building) depreciation as the ATO recognises that the QS is one of the few industry professionals capable of establishing the original construction cost. This has not changed!
As far as a QS is concerned (speaking as one), the only drop off in work will be from those post 9 May 2017 acquisitions where the original property was constructed prior to 15 Sep 1987, thereby not qualifying for Division 43 deductions or the Division 43 deductions have expired, AND where this same pre 15 Sep 1987 property has NOT undergone any capital improvements (Division 43 renovations and improvements). Pre 15 Sep 1987 properties will still require the services of a QS if they have undergone Division 43 renovations and improvements, however, the viability of the service will come down to the extent of the renos and the time period that the owner intends to rent the property. Other properties that may not require a Tax Depreciation Schedule are those where the previous owner passes on the Division 43 amount.0
- The alternative argument goes that since the govt is deeming that effective life can only be held by the original purchaser, then any residual life should be written off. Can't have it two ways!0
