"Purchasers of second-hand residential investment units have lost their ability to claim depreciation on plant and equipment which is part of the property at the time of purchase,” she said. “The government will limit plant and equipment depreciation deductions to outlays actually incurred by investors. There is no lead-time with these changes – they apply to all contracts entered after 7.30 pm (AEST) on 9 May 2017."
The changes to depreciation are forecast to save the federal budget about $260m over the next four years.
Other experts have warned that changes to depreciation will cost investors thousands of dollars, while potentially having a negative impact on housing affordability.
Being able to claim depreciation on investment properties is a powerful motivator for many investors. Following the implementation of these changes, “older building stock may [become] less desirable,” said Arkcoll.
“The removal of depreciation claims will have a double impact on strata property owners. They will lose both the claim for depreciable items inside their unit and depreciation of their share of common plant and equipment. This will mean a reduction in annual tax deductions that in the early years of ownership range from approximately $3,000 for a simple unit to over $40,000 for an upmarket unit in a high-rise development,” she added.
However, Arkcoll told investors not to jump to conclusions. Until more details are released, it won’t be possible to fully assess the ramifications of the new budget. “It is likely that we will be operating with uncertainty for an extended period until the draft legislation is released,” she said.
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