How to get around new depreciation rules

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The property market has finally received some much-needed clarification on the federal government’s plan to reduce depreciation deductions for residential properties.

Last Friday, the Treasury released a draft bill that covered how depreciation deductions on second-hand property could be claimed moving forward.

According to Tyron Hyde, director of quantity surveying firm Washington Brown, a lot more people could start buying properties in company tax structures in order to get around the new depreciation rules.

“If you engage a builder to build a house and it remains an investment property, you will still be able to claim depreciation on both the structure and the plant and equipment items,” Hyde said.

On the other hand, if you renovate a property that is being used as an investment, you’ll still be able to claim depreciation on it once you’ve finished the renovations.

This privilege does not extend to new owners in the event of a sale, however. “If you renovate a house, whilst living in it, then sell the property to an investor, the asset will be deemed to have been previously used and the new owner cannot claim depreciation,” Hyde said.

While investors purchasing second-hand property can no longer claim depreciation on the existing plant and equipment, their capital gains tax will be lessened when they sell the property.

“How? Well, in summary, what you would’ve been able to claim in depreciation under the previous legislation, now simply gets taken off the sale price in the event you sell the property in the future,” Hyde said.

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