The Federal Budget proposed changes affecting residential property investors may discourage future investors from purchasing a second hand residential property, BMT Tax Depreciation Quantity Surveyors believes.
The tax depreciation firm pointed to the current rules that allow investors to claim qualifying plant and equipment depreciation on assets found in an investment property they purchased, even if they were installed by a previous owner.
The new rule that still needed to be legislated would only allow investors to depreciate new plant and equipment assets and items they add to their property. However, subsequent owners would not be able to claim depreciation on existing plant and equipment assets.
BMT chief executive, Bradley Beer, said: “This change will have a major impact on investors, essentially reducing the annual deductions they can claim therefore reducing their cash return each year. This could lead to investors being in a tighter financial position and may discourage future investors from purchasing a second hand residential property”.
“It is our understanding at this stage that if the property is new, they will be able to continue to depreciate plant and equipment as they were previously. We are seeking further clarification on this,” he said.
BMT noted that existing investments would be grandfathered which meant that anyone who purchased a property until 9 May 2017 would be able to claim depreciation as per normal. However, if a property investor exchanged contracts to purchase a second hand property after 7.30pm on 9 May, there could be different depreciation rules applied to their scenario.