Property market stakeholders are processing how new changes to be introduced by the federal government will reduce depreciation deductions for residential properties.
The Treasury Department has released a draft bill outlining the changes to how depreciation deductions will be able to be claimed.
Quantity surveying firm Washington Brown’s Tyron Hyde spoke to Your Investment Property and said the changes would likely see people increasingly using tax structures to buy property to get around the new rules.
“If you engage a builder to build a house and it remains an investment property, you will still be able to claim depreciation on both the structure and the plant and equipment items,” he said.
“On the other hand, if you renovate a property that is being used as an investment, you’ll still be able to claim depreciation on it once you’ve finished the renovations.”
Depreciation won’t be able to be claimed by new owner sin the event of a sale however.
“If you renovate a house, whilst living in it, then sell the property to an investor, the asset will be deemed to have been previously used and the new owner cannot claim depreciation,” Mr Hyde told Your Investment Property.
Mr Hyde said that while investors purchasing second-hand property can no longer claim depreciation on existing plant and equipment, they could reduce their capital gains tax when selling.
“What you would’ve been able to claim in depreciation under the previous legislation, now simply gets taken off the sale price in the event you sell the property in the future.”