May, 2017

The federal government’s determination to commit to negative gearing and capital gains tax discounts in last week’s budget is welcome relief for real estate investors. However, there are a few measures that seemed to have appeared from out of the blue, which will require further detail, writes Angus Raine, Executive Chairman, Raine & Horne.

Negative gearing going nowhere

Pleasingly, the Government reiterated in the budget that it has no intention of removing or limiting negative gearing or changing the capital gains tax discount. To do so, would add to the tax burden on Australians trying to provide a future for their families. This practical decision maintains the supply of housing for our growing population, keeps rents affordable and eases the burden on social housing. It will also give many Australians the confidence to keep investing in bricks and mortar to build long-term wealth.

Depreciation deductions limited for residential rental properties

While the government left negative gearing intact, the decision to tighten some deductions will create confusion among property investors. For instance, plant and equipment depreciation deductions will be limited to equipment purchased by investors in residential real estate properties from 1 July 2017. I’m not an accountant, so I looked to the National Tax and Accountants’ Association (NTAA) for some clarification. The NTTA says plant and equipment items are usually mechanical fixtures or those which can be easily removed from a property such as dishwashers and ceiling fans. According to the NTAA this is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors more than their actual value. I have no idea if this double-dipping is happening, however, we need to see more detail from the government about this measure.

Change to travel expenses

Travel expenses related to residential rental properties will also be disallowed. Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed from 1 July 2017. This measure will not prevent investors from engaging third parties such as real estate property managers such as Raine & Horne – property management services will remain tax deductible.

To find out more about what the taxation measures announced in the Federal Budget mean for your investment property, please contact to your accountant.