Brighter Landlording

Budget blunder – how did the media miss these depreciation changes?

by Karleen Jentz, Copywriter 26 May 2017

Property commentators appeared to breathe a collective sigh of relief when this month’s Federal Budget was unveiled with “no changes to negative gearing”.

And while that might be true on the surface – you can still claim tax deductions for losses directly incurred on investment properties – a key detail was overlooked in initial media reporting.

The budget included a rule change so residential investors can no longer claim indirect expenses on ‘plant and equipment’.

What does that mean? Investors can now only claim depreciation on items like dishwashers, carpets and blinds if they pay for the items themselves, for example through buying a brand new property.

But you won’t be able to depreciate these items if they already exist in an established property.

The rule change applies to properties purchased after 9 May 2017.

The measures are designed to cool investor demand in overheated markets and most experts are expecting it will have an effect, which will be music to the ears of first home buyers gallantly competing with investors.

But Tyron Hyde, director of quantity surveying firm Washington Brown, has told it could make markets worse before they get better.

“You might see investors now holding onto a property for longer, because they know they won’t get depreciation on their next property,” Mr Hyde said.

Whichever way it plays out the changes are most likely to be felt by investors only in the first few years after purchasing a property when they historically enjoyed maximum depreciation benefits. The bonus tends to level out as depreciation benefits reduce and rent increases over time.

Care more for capital appreciation than plant and equipment depreciation? View our current listings for sale.