That’s an excellent question.
The following is a brief summary of what the main points are that may affect current and would-be Australian Resident Property Investors—keeping in mind that at this stage these are only proposals that will have to be passed by both the House of Representatives and the Senate, of which the government does not hold a majority.
What’s NOT affected:
Any existing investment properties purchased, ie. contract exchange date, prior to 9 May 2017 is not affected. Nor are commercial, industrial and other non-residential properties.
Negative gearing isn’t tabled to change, nor has the Capital Gains Tax 50% discount. (This is proposed to actually increase to 60% if you elect to invest in qualifying affordable housing).
Capital Works deductions, ie. depreciation of your building over 40 years, has not been affected. This deduction in itself has always been a great reason why you would choose to purchase a brand new property as an investment, especially a new build, as you get the maximum benefits each and every year, for 40 of them.
It might change, but it’s not all bad news:
Probably the biggie here is that Plant and Equipment depreciation deductions will be limited to new purchases only. Therefore, if you purchase a property that is NOT new the existing plant and equipment will be reflected in the cost base for capital gains tax, rather than deductible each tax year. To gain the best tax deductions you would be best to purchase a brand new build and as the first owner, enjoy full depreciation of all plant and equipment. You will need a Quantity Surveyor’s report to make your claims.
Existing property investors may consider it prudent to hang on to their current properties to continue claiming depreciation on the plant and equipment, as their next investment may not enjoy the same deductions if they purchase a less than new property. Brand new properties will always provide the best tax deductions, especially if this new budget is passed.
Travel Expenses to inspect, maintain and collect rent will no longer be deductible for properties held interstate. Property Management fees are still fully tax deductible, so ensure you engage one to do the work for you.
First Home Buyers can make voluntary contributions into their superannuation up to $15,000 a year, and capped at $30,000 in total. These contributions, plus earnings can then be drawn down to use as a deposit on their first home. Think of it as a super-charged savings account.
In addition, First Home Buyers can still take advantage of the First Home Buyers Grant, which can be used to purchase your first investment property instead of your first principal place of residence. So you can invest first if you wish.
As mentioned already, these are only proposals at this stage, so watch this space if/when it becomes real.
Posted by Peter Spencer on 16 May, 2017 11:43 am