What Will The New Depreciation Legislation Mean For Your Future Investment Properties?

Have you heard about the new depreciation legislation? You may have been aware of the proposed legislation that was announced earlier this year in May as part of the Federal Budget announcement. These changes have now been legislated and effect all property investments after 9 May 2017. If you are planning on purchasing existing property for investment, make sure you are across all of these changes, as they have very real consequences.

Understanding changes to depreciation

Previously when you bought an investment property, whether that was an apartment, existing home or a new build home you were able to claim depreciation on “Plant and Equipment”, more commonly known as fixtures and fittings at the rate of 20-30% (depending on the individual item), and also claim a capital allowance deduction on the building component of the property at 2.5%. Plant and Equipment (P&E) are the assets on the property that are considered by the ATO to be easily removed from the property. These include things such as air conditioning units, curtains and blinds, carpets, appliances or security systems.

However, not all property investments will now be able to claim depreciation at the same rates on P&E, reducing the tax effectiveness of some property investments dramatically. Specifically, if you are purchasing an established home after 9 May 2017, you will no longer be able to claim depreciation at the rate of 20-30%, but rather only at the flat 2.5% on both P&E and the building component.

Thinking of building a new home or purchasing a house and land package as your next investment? Luckily for you the rate at which you could previously claim P&E will not change, as under the new depreciation rules you can still claim at the old rates provided you are the “original purchaser” of the P&E, which for a new build that is deemed to be the case. Depending on the value of the property or house and land package, the difference in the depreciable amount can be tens of thousands each year, so property investors need to evaluated this very carefully moving forward to maximise your after tax returns.

What this means for you

For anyone wishing to invest in established homes this is not a small change, so consider your options very carefully as not all property types are the same now. If you are planning on purchasing an established home as an investment, your typical depreciation deductions have just been reduced from around 25% on the P&E value to 2.5%, which is often a reduction of $10,000 to $20,000 pa in depreciation deductions. If you are yet to invest or thinking about adding to your property portfolio, make sure you consider an off-the-plan house and land package (new build) as you will still be eligible for the full depreciation claims as previously allowed by the ATO. Savvy investors will ensure they protect their after tax position with this type of property investment, while still enjoying superior rental yields and strong capital growth enjoyed by new build investments.

It is no secret that if you are investing, the tax benefits are a huge reason for investing in property in the first place. Although property prices continue to grow and capital growth is very likely, having extra cash now from tax deductions is something that will put a lot of investors off from purchasing established homes in the years ahead.

Now what? Check Out investment house & land

Speak to an expert consultant now about how you can make depreciation work for you.

Previously, no matter what type of property you purchased you would be able to claim back a high portion of your investment, making it financially viable on an after tax basis. However, now that the lion share of the depreciation claim is no longer available on established property investments, you should seriously consider investing in a new house and land package.

With the prices of established homes continuing to grow in recent years, investing in an established home was getting out of reach for many investors anyway, with medium house prices climbing to $860K+ in Melbourne, and $1.15m+ in Sydney. With investment house & land packages from $450K in Melbourne and $650K in Sydney, not only do they offer a more tax effective investment, they are also more affordable and offer greater upside in terms of capital growth given the lower base price.

 

If you are interested in still making the most of depreciation claims, have a chat to one of our consultants at iBuildNew. We can advise you further on how the new depreciation rules can work to your advantage, and we can intelligently match you and your investment objectives with the most suitable house and land package. All packages are fixed price, full turnkey and therefore tenant ready on day one. You can call us 7 days a week on 1800 184 284 or book a call online.

Zoe Langenberg

Zoe is passionate about coffee and interior design. You can find her most weekends exploring an art gallery or devouring a good book.

About

iBuildNew is the market leading aggregator dedicated to residential home construction and land development. As an independent platform, iBuildNew helps Australians identify and compare new home designs, house and land packages and land estates. It’s the smart way home buyers, who are considering a new build, can find the ideal options to match their individual needs. Home building is a big decision, we make sure you get it right.

You may also like

Jan 08, 2018

No Land for Sale Near You? Here’s how to Finance a K...

Finding vacant land for sale in Melbourne is near impossible. And if you have your hear...
Read More
Mar 03, 2017

Thinking About Fixing your Interest Rate? Read this ...

This post was originally published at unohomeloans.com.au Choosing to build a new house...
Read More
Aug 18, 2016

Strategies to Take You From Renting to Building

Getting into your first home can seem like an uphill battle – or an impossible dream. B...
Read More
Sep 21, 2017

The Difference Between Buying a Home and Investing i...

Whether you are building your dream home or are interested in investing in property, th...
Read More
Feb 21, 2018

Could a Low Deposit Home Loan Be an Option for Your ...

Whether you’re just starting to look to buy your first home, or you are looking for an ...
Read More
May 31, 2017

You Can Own Your First Home – Shared Equity Pr...

With traditional methods of saving a deposit and purchasing a first home seeming to be ...
Read More
Mar 21, 2017

Home Builders Base Rates Explained

Planning your home’s design is a task that should not be taken lightly. The same goes f...
Read More
Oct 05, 2017

Investing in Property? Prepare Your Team Now

If you’ve decided to invest in property, then you have made the first big move towards ...
Read More
Mar 29, 2017

Understanding Stamp Duty Concessions for Your New Build

Stamp duty is a tax that everyone buying assets, such as real estate, is required to pa...
Read More
Jul 19, 2018

How Much Of A Deposit Does A First Time Home Owner Need

If you're consider getting into the market to become a first time home owner, there are...
Read More
Feb 03, 2017

The Parent Trap: Keeping Your Home Loan Under Contro...

This post was originally published at unohomeloans.com.au Building a new home is a drea...
Read More
Jan 28, 2016

Finance Your New Home – How To Guide

Buying a house is probably the biggest financial decision you're going to make, so it's...
Read More
Feb 27, 2018

7 questions you have about your residential contract...

We understand that when you are going through the process of purchasing real estate, wh...
Read More
Oct 09, 2018

What happens to property investment under a Labor go...

With the recent turmoil witnessed within the federal Liberal party that led to the very...
Read More
Dec 12, 2017

Our Top Tips to Save For a House Deposit Faster

If you have decided that you want to build a new house, but don’t yet have enough saved...
Read More
Sep 08, 2017

Understanding Building Contracts in Your State

If you are planning on building a new home then you will have to sign a building contra...
Read More
Oct 25, 2016

First Home – Finance Tips

Building your first home is probably the biggest decision you will ever make. The first...
Read More
Dec 12, 2018

WA announce $421 million expansion programme for Key...

Premier Mark McGowan has announced a predicted budget surplus in the forthcoming mid-ye...
Read More
Jun 25, 2018

Changes to Victorian Tenancy Laws

Tenancy laws have not seen much change for the last 20 years in Victoria. Although rece...
Read More
Nov 22, 2017

Why Should You Speak to a Mortgage Broker

Looking for a lender can be incredibly difficult, time-consuming, and confusing. That i...
Read More
May 23, 2018

Searching for an Investment Property: Negative Geari...

Negative gearing is when you borrow money to make an investment, and the income from th...
Read More
Apr 06, 2017

Good News For Housing Affordability

Everyone wants a place to call their own, somewhere they can build a foundation for the...
Read More
Feb 24, 2017

Understanding the Secret Language of the Lawyer

When you build a house, the entire process can seem somewhat overwhelming. However, at ...
Read More
Dec 12, 2017

6 Ways To Stretch Your New Home Building Budget

When you start building it is likely that your lender will set you a budget or a cap to...
Read More

Get more from

Browse Investment Properties