Old depreciation rules still apply before July 1 investor property changes: Washington Brown's Tyron Hyde

The May 9 federal budget proposed changes to the way property investors claim depreciation, but it is not all bad news, according to quantity surveying firm Washington Brown’s CEO and director Tyron Hyde.

Explaining the changes in a recent webcast, Hyde alluded to the changes from July 1 when government will limit plant and equipment depreciation deductions to what is actually incurred by investors in residential properties.

Pointing out that the key was “actually incurred”, it just means that if an investor bought a second-hand property it probably means that he did not buy some of the equipment like the oven or dishwasher which the earlier owner or the developer may have bought.

So, as the investor didn’t actually incur that expense, it can't be claimed as depreciation.

Depreciation is a tax deduction for the wear and tear on an investment property over time and recognises the fact that the building itself, as well as its plant and equipment will become worn out over time and eventually need to be replaced.

Plant and equipment in a building are things like the ovens, the dishwashers, the carpets. The other part of a report of depreciation schedule is what’s called the Division 43 allowance. That’s the building allowance. That’s the structure of the building, that’s the brickwork, the concrete, the windows etcetera.

To make a claim those allowances, the property has to be built after 1987. 

The silver lining is that the proposed changes are grandfathered, meaning if an investor bought a property prior to the budget, nothing changes.

“If you exchanged contract, let’s be clear on this if you exchanged a contract prior to the budget, nothing changes,” said Hyde. 

He added that if an investor already has a depreciation report, he can claim exactly how it is.

So an investor bought a property two years ago but didn’t get a depreciation report, it would be helpful to get it now because the old rules will be applied before the commencement date for changes.

In fact, Hyde suggested that if a property three years ago or two years ago, and haven’t got a report, now would be a good time to do that.  

“You can actually amend tax returns to factor in that property that you haven’t claimed, so you can actually amend your tax returns for a two-year period.”