Residential property investors lose travel deductions
Taxpayers with residential rental properties will lose the ability to claim tax deductions relating to travel from 1 July 2017.
New Law: disallow the deduction of travel expenses for residential rental property
From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.
This is an integrity measure to address concerns that many taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private travel purposes. As part of the Government’s strategy to improve housing outcomes, this measure will provide confidence in the tax system by ensuring tax concessions are better targeted.
This measure will not prevent investors from engaging third parties such as real estate agents for property management services. These expenses will remain deductible.
New Law: limit plant and equipment depreciation deductions to outlays actually incurred by investors
From 1 July 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.
This is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value. Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.
These changes will apply on a prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.
Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property.
The new law to disallow plant and equipment depreciation deductions will particularly affect new build and off-the-plan purchasers, because the tax deductions previously available to property investors, which helped to reduce the cash loss from negatively geared property, will no longer be available. Property Investors who install fittings and fixtures on residential investment property they already own are not affected. The new law leaves building depreciation (capital works deductions) unaffected.
As always, please talk to one of our Tax specialists at Butlers Accountants if you have questions relating to your investment property on 07 5536 2288.