If you are a property investor, no doubt you will be nervous about some of the Government's proposed changes limiting tax deductions for rental properties.
What are some of these changes and what do they mean when it comes to saving or paying more tax?
Figure 1: Some of these tax changes for property investors will have even Shakin' Stevens up in arms.
1: Travel Costs Inspecting REntal Properties No More
From 1 July 2017, the Government intends to stop anybody claiming travel deductions related to inspecting, maintaining or collecting rent for residential properties. This seems harsh but it would appear that the ATO is finding it too hard to work out whether the trip is legitimate or not so has put an end to it altogether.
2: Depreciation Changes
If you buy a property after 9 May 2017, you will not be able to claim depreciation on items (other than capital works 2.5% or 4% depending) such as air conditioners, ovens, swimming pools, carpets etc unless you are the original purchaser. In other words, if these came with the property you won't be able to write them off.
3: Pre 9 May 2017
If you bought a property prior to 9 May 2017, the original rules for depreciation will still be available and if you haven't done so, you should consider getting a quantity surveyor to give you a depreciation schedule so you can maximise your tax depreciation deductions.
Figure 2: Watch out for tax traps behind the "Green Door".
4: Higher Deductions For Co-Owners
Sometimes having a rental property with more than one owner will get you a higher deduction. For example if an owner's interest in an asset is less than $300, they can write it off immediately. Therefore, if the co-owners are 50/50 and the asset is under $600, they can each write off their less than $300 share whereas a 100% owned individual would have to depreciate over a number of years. This can also apply to low-value pooling where an owner's interest is less than $1,000.
5: Land Tax - Beware Of Unit Trusts Owned By Family Trusts
Whilst it's a state impost, be wary if you have a unit trust that owns residential property and the units are owned by a family trust whose deed does not prohibit the trust from distributing to a non-resident as higher amounts of land tax can now be charged. This could be a bit scary for example if one of your children who might be a beneficiary of the trust go overseas for a while causing them to be a non-resident. Please note that they don't have to receive a distribution for this to apply. We recommend that any unit trusts with this scenario to have their trust deeds reviewed and amended by an appropriate legal practitioner (be careful of stamp duty and resettlement issues) to ensure this land tax trap does not apply.
The proposed changes above will not be very popular with those with rental properties whether they involve negative gearing or not. Small business accountants will now need to ensure that if these changes come in they are in fact au fait with the new laws.
Shakin' Stevens would not be pleased and may refuse to come out from behind his Green Door!