It has been a number of years since the Government announced in the 2017/18 budget measures to assist with the problems of housing affordability, however Investors are still unaware of these changes. These measures affected the tax legislation in relation to investment properties which limited plant and equipment (Div 40).
These changes were implemented to stop entities claiming inflated deductions relating to their rental properties by ‘refreshing’ the values of previously used depreciating assets in residential rental properties. Furthermore, the legislation changes on the second-hand property now defer the depreciation benefits for the decline in value of Division 40 plant until the sale of the property.
As a result, the amounts that would previously have been claimed under Division 40 plant are now utilised at diposal and form the basis of a CGT event. Any capital loss will be offset against the capital gain incurred on the sale of land and building shere is no difference in the total tax payable over the 5-year period.
The only changes are on claiming the tax benefit and the impact on cashflow. Although your second-hand property may not be eligible to calim Division 40 deductions immendiately, any deferred depreciation benefit should still be calculated and reported as a “Capital Loss” when you sell the property.
A depreciation schedule is essential to any property investor regardless of a property’s age. Therefore, your depreciation will include Capital Loss Deduction on a second-hand property, which will be needed to calculate the written down value needed at property disposal.
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