Removing Budget Confusion Over Claiming Depreciation


THE 2017 FEDERAL BUDGET (handed down by Treasurer Scott Morrison on Tuesday 9 May) includes proposed changes, which will affect residential property investors Australia-wide.

At this stage, our understanding is that depreciation claims relating to commercial properties won’t be affected. This is good news for anyone who owns a commercial property.

Some background

The Australian Tax Office (ATO) allows owners of income producing property to claim depreciation deductions for the wear and tear that occurs to a building’s structure and the plant and equipment assets within.

The proposed changes relate to the depreciation of plant and equipment assets and the eligibility to claim this deduction.

Before the Budget, all investors were eligible to claim qualifying plant and equipment depreciation on assets found in an investment property they purchase, even if they were installed by a previous owner.

Going forward

Under the new rules which are yet to be legislated by Parliament, investors will be able to depreciate new plant and equipment assets and items they add to their property. However, subsequent owners (of residential properties) will not be able to claim depreciation on existing plant and equipment assets.

This change will have a major impact on residential investors – essentially reducing the annual deductions they can claim; and therefore, reducing their cash return each year.

As such, this could lead to investors being in a tighter financial position and may discourage future investors from purchasing a second-hand residential property.

Our understanding (at this stage) is that if the property is new, they will be able to continue to depreciate plant and equipment as they were previously. However, we are seeking further clarification on this.

Residential investors will still be able to claim capital works deductions (also known as building write off), including any additional capital works carried out by a previous owner.

The Budget notes were clear …

Existing investments will be grandfathered. This means that anyone who has purchased a residential property (up until the 9 May 2017) will be able to claim depreciation as per normal.

If a property investor exchanges contracts to purchase a second-hand residential property after 7:30 pm on 9 May 2017, there could be different depreciation rules applicable to their situation.

We are currently speaking with government to further understand the intricacies relating to the budget notes and the proposed changes to depreciation of plant and equipment assets.

Bottom Line: As mentioned … it is our understanding at this stage that depreciation claims relating to commercial properties won’t be affected.


  1. Chan & Naylor says

    The tax outcome may be different when the assets are owned by the tenant and when owned by the landlord. If the landlord supplies fit-outs, the tenants would need to pay tax on that as a non-cash incentive and deduct the benefit. Tenants should also consider the end of the lease to avoid possible trouble down the line. Pre-payment of rent before June 30 won’t likely give the taxpayer an additional deduction because of the tax structure. For more tips and advice, please follow my Facebook page:

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