Deductions

As of the 1 July 2017, The Australian Government’s changes affecting rental property deductions will come into effect. The proposed changes will affect the deductibility of traveling to and from rental properties and depreciation of plant and equipment.

Travel to Investment Properties

Prior to any mention of deductibility changes, tax payers have been able to write-off the costs of travelling to and from their residential investment property. Beginning on 1 July 2017, the Government has amended the deductibility allowances, vetoing the deduction of travel expenses related to reviewing, upholding or assembling rent for any investment property.

Depreciation of Plant and Equipment

Any purchases of plant and equipment made by investors after 9 May 2017, is an allowable deduction over the effective life of the asset. The Government has however, implemented restrictions on subsequent owner’s ability to claim relating deductions. For example, if Owner A purchases a depreciable asset on the 10 May 2017 they can claim any depreciation deductions on that asset. However, when the investment property ownership is passed to Owner B (the subsequent owner), they are unable to claim deductions for that asset purchased by Owner A.

The percentage of the purchase price that influences the value of the assets will affect the cost base and reduce capital gains once disposal of the property takes place. Plant and equipment purchased and which are a part of the investment property as at 9 May 2017, are not affected by the change and deductions for depreciation are still available. This applies up until the investor no longer has ownership of the asset or the asset reaches the end of its effective life.

Affordable Housing

The Australian Government has proposed an increase in the Capital Gains Tax discount. As at 1 January 2018, those who invest in qualifying affordable housing will have access to a 60% Capital Gains Tax discount on that investment. This will apply to both new and already existing affordable housing investments.

The following conditions must be satisfied to be eligible for the CGT discount

1. The property must be rented at a discounted price to low income earners;
2. A registered community housing provider must manage the investment; and
3. The investor must hold the affordable housing for a minimum of 3 years.

Additionally, as at 1 July 2017, resident investment property stakeholders will gain admittance to long-term investments in inexpensive housing through Managed Investment Trusts (MITs). This will permit revenue from capital gains to be entitled to the proposed increase in the Capital Gains Tax discount.

Overseas organizations and non-resident stockholders will also be able to capitalize on affordable housing through concessionally taxed MITs. Allowing an increase in affordable housing availability for Australians.