Skip to main content

Depreciation laws have officially changed if you are a property investor who buys a second-hand residential property – you can no longer claim depreciation as a deduction on plants and equipment such as window furnishings, air-conditioners, or hot water systems. Even if they’re only 6 months old.

You can still claim deductions on these items if you invest in a new residential property.

This may affect you if deductions for plant and equipment are an important part of your cash-flow – and the holding costs of your second-hand property.

Get up to speed on what has happened, why, and what this means for you…

What has happened?

As part of the 9th May 2017 federal budget, the Australian government proposed changes to legislation relating to plant and equipment (division 40) deductions.

These changes were passed by the Senate on 15th November – as outlined in the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017.

It has changed the Income Tax Assessment Act 1997.

The new depreciation laws apply to property investors who buy second-hand residential property from 7.30pm 9th May 2017. Check out the new ATO guidelines on plant and equipment depreciation.

What were the changes?

Before 15th November 2017, property investors could claim income tax deductions for the declining value of ‘previously used’ depreciating assets (plants and equipment) for residential properties. They cannot claim these assets anymore (since 9th May 2017).

The law doesn’t affect commercial, industrial, retail and other non-residential properties.

What are ‘plant and equipment’ assets in residential properties?

Easily removable items: window furnishings, heaters and solar panels
Mechanical items: air conditioners, dishwashers and hot water systems

Why were the changes made?

‘By limiting plant and equipment depreciation deductions the Government is cracking down on investment property abuse by removing the existing opportunities for capital items to be depreciated by multiple owners in excess of their actual value.’
7 September 2017 media release: Treasurer and Assistant Treasurer

The Government aims to make housing more affordable by stimulating the economy through the construction industry, saving Australia an estimated $260m every year. It is one of several changes including:

      • Allowing prospective home buyers to save for a home in their super accounts
      • Letting retirees top up super funds with the money from selling their homes
      • Vacancy tax to increase the number of houses available to live in

Will this change actually make housing more affordable?

Critics think not. They say people may hold onto their properties longer.

With tighter cashflows, they can’t afford to sell and buy their next property as quickly as expected. Less properties on the market would drive prices up.

Read more: Limits on property investors will restrict housing supply: expert (news.com.au) and Property investors lose out on legislation changes (The Real Estate Conversation).

Only time will tell what impact these changes will have.

What does this mean for you?

  1. Speak to your accountant to check what you can and can’t claim
  2. Tax savings may make buying brand new property more appealing if you know what you’re doing and are aware of tax implications
  3. Do your homework before deciding whether to buying a second-hand property or a new one: the difference could be tens of thousands of dollars

Make the new depreciation laws work for you.

Give me a yell if you’d like to review your situation together.

Nick Holden

Nick Holden

Nick Holden is the Founder of Simple Property Investment and an insured, qualified Property Investment Advisor under the ASPIRE Network industry body. He is a Licensed Real Estate Agent, holds a Diploma of Financial Services (Financial Planning) and Cert IV Financial Services (Finance and Mortgage Broking). As there is no 'one size fits all' with property investment, he is on a mission to help ordinary Australians create wealth for their futures with personalised strategies and advice.