Budget Changes For Rental Properties! How does it affect me?

In the May Budget, the government introduced some changes in an attempt to reduce the pressure on housing affordability. Here is what you need to know about how these changes will affect you?

Travel Expenses

For a long time now deducting travel expenses for traveling to a property you own for rental purposes was the norm, whether it be in your state or interstate.

As per the 2017/18 budget, the government intends to disallow all travel expenses relating to inspecting, maintaining, or collecting rent for a residential investment property from 1 July 2017.

So, what does that mean for every couple or individual who may own a residential property in their personal name(s)? From the 1 July 2017 you will not be able to claim expenditure from traveling by car, plane or any other way to your residential rental property as a tax deduction against rental income. Furthermore, as per current legislation, the expenditure cannot be added to the cost base of your rental property for capital gains purposes.

Exceptions

But don’t fret just yet, there is some good news, you will be able to deduct travel expenses if you are carrying on a business or one of the following entity types owns the property:

  • Corporate tax entity (i.e. company)
  • Superannuation plan that is not a self-managed superannuation fund;
  • Public unit trust
  • Managed investment trust
  • Unit trust or a partnership

Depreciation

Travelling expenses are not the only rental deduction affected by this years budget, everyone’s favourite deduction, depreciation, has also taken a hit. Under the new rules proposed, investors will no longer be able to depreciate assets found in a rental property installed by any previous owners.

The following is an overview of what is affected:

  1. Investors can only depreciate plant and equipment assets if they have physically bought the asset or have bought a brand new residential property.
  2. Changes come into effect from May 9, 2017, so therefore it will affect investors who have bought a “second-hand” property after this time.
  3. Investors who have purchased a property before the above date can go on depreciating, as usual, you won’t be affected by the changes.
  4. The 2.5 % capital works deduction has not changed, so if your rental house was built after 16 September 1987, you can still claim the depreciation as per usual.

Deductions

Just like the effects to travel expenses the depreciation changes do not affect deductions
that arise in the course of carrying on a business or for:

  • corporate tax entities
  • superannuation plans other than self-managed superannuation funds
  • public unit trusts
  • managed investment trusts
  • Unit trusts or partnerships whose members are the above-listed entities.

Capital Works

It is important for property investors to be aware of these new changes before they plan their next investment. A property has to be built after 1987 for an investor to claim any Capital Works benefits.

Furthermore, when considering purchasing your first or next investment property it is recommended to consider the type of property that would best suit your financial position at the time or how you would like to set yourself up in the future.

By Dimitrios Garas CPA, Accountant

 

 

If you are interested in how these changes will affect you, take 5 minutes out of your day to contact us and talk to one of the Team at AS Partners to see how we can help.

Contact us for a complimentary review of your current business structure

Comments are closed.