Please note - Due to the holiday season, builders and developers may be slower than usual in responding to any queries Close

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 evaluate 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 with 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 15, 2020

What Is Rentvesting And Is It Right For Me?

Renting in a bustling inner-suburb may give you the lifestyle that you are after and ha...
Read More
Oct 31, 2018

Are We Moving Towards a Buyer’s Market?

With falling markets in Sydney and Melbourne and analysts such as Louis Christopher fro...
Read More
Feb 21, 2018

Everything you need to know about building contract ...

When you are building a new home in Australia, or making any major renovations, you wil...
Read More
Nov 13, 2019

Mistakes to Avoid When Investing In Property Through...

While using a self-managed super fund (SMSF) to buy and invest in property is becoming ...
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
Jul 20, 2018

How Real Estate Investment Can Help You In Retirement

Real estate investment has long been viewed as an enormous support financially for self...
Read More
Mar 04, 2021

7 Essentials You Need To Start Investing In Property

This article was originally published on iBuyNew.com.au and has been reposted here with...
Read More
Apr 04, 2018

6 Reasons You Should Use A Property Management Compa...

If you have invested in property, leasing it out is one of the most financially rewardi...
Read More
Oct 09, 2019

What Type Of Investment Property Is Right For You?

After saving up and making all the preparations, the exciting stage of choosing an inve...
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
Oct 20, 2017

Stocks Versus Property Investment: Which One is Righ...

It’s the age-old debate: stocks versus property? Anecdotally, Australians see certain s...
Read More

5 Interesting Ways to Customise When Buying Off-The-...

One of the biggest differences between a custom home and buying off-the-plan home is th...
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
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
Mar 05, 2019

How to Set up a Self Managed Super Fund

A self-managed superannuation fund (SMSF) can be a useful vehicle to invest in property...
Read More
Dec 18, 2017

What Will The New Depreciation Legislation Mean For ...

Have you heard about the new depreciation legislation? You may have been aware of the p...
Read More
Jul 04, 2019

Capital Gains vs. Rental Yield: Which is Better? 

It’s the age-old question when it comes to property investing: should I opt for capital...
Read More

Investing In House and Land Packages VS Pre-Existing...

When investing in property, it can often be way too difficult to know which kind of pro...
Read More

Checklist For Your Investment Property Plan

Property investment is not a simple task, and getting financially ready for an investme...
Read More
Jul 16, 2019

8 Essential Skills of a Strong Property Management T...

Sourcing a good property manager can be a daunting task for even the most experienced l...
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
Jul 21, 2017

Enjoy Maximum Capital Growth When You Choose Investm...

There are a lot of misconceptions about an investment property, which is why it’s cruci...
Read More
Oct 05, 2018

What does Capital Gains Tax mean for you?

Capital gains tax can be a complex thing to wrap your head around, especially when you'...
Read More
Oct 02, 2019

Think Like An Investor And Achieve Your Investment G...

When adapting the mindset of a property investor, it is important to be well-informed w...
Read More

Get more from

Browse House and Land Packages