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There are simpler and fairer ways to address the property investment integrity issue than the government's proposed changes, which will have a major impact on investors and may discourage them from purchasing second-hand residential properties in the future, according to one tax depreciation expert.
CEO of BMT Tax Depreciation Bradley Beer said that, if the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 introduced into parliament last week was enacted, it will reduce the annual claimable deductions, which could put investors in a tighter financial position, and if so would negatively affect residential property investors across Australia.
The draft bill went to public consultation in August, where the public and stakeholders voiced concerns about the severity of the changes and their negative effect on housing affordability.
Mr Beer said that the legislation now needs to be debated and passed by both houses of parliament before it becomes law.
“We can only hope that the senate opposes this policy,” Mr Beer said.
“Our data demonstrates that the average depreciation deduction claimed for plant and equipment assets on a typical three-year-old residential property, purchased for $600,000, is $21,178 for the first five years.
“The changes will result in an average loss of $4,236 in deductions per year to property investors. Based on a marginal tax rate of 37 per cent, an increase of $47 per week in rental income would be required to counter-balance this reduction.”
But Mr Beer said that there was a silver lining. The capital works deduction, which makes up 85 per cent to 90 per cent of the total depreciation claim for residential investors, will not be affected.
“Residential property investors will still be able to claim capital works deductions, also known as building write-off, including any additional capital works carried out by a previous owner,” the CEO said.
“These changes make it as important as ever for property investors to find and correctly claim every single deduction they are entitled to.”
Announced in the 2017 federal budget, the amendment denies tax deductions for the decline in value of previously used or second-hand depreciating assets found within residential investment properties.
The new legislation will limit plant and equipment depreciation deductions to only those outlays actually incurred by investors in residential properties and those who purchase brand-new investment properties.
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