As a residential property investor when can I claim for plant and equipment?

There is much confusion regarding whether plant and equipment can be claimed in residential property investments by the property investment taxpayer (individual or otherwise). This confusion came to be, post May 9, 2017 depreciation rule changes. Note, this rule only applies to residential investment properties, not commercial properties. We have some positive real-life examples provided later in the article that occurred from a second opinion.

Misinformed thoughts (lack of knowledge of tax laws pertaining to tax depreciation of property investment) confuse would be tax depreciation enquiring tax-paying property investors. This misguided information is costing many ill-informed property investors tens, sometimes hundreds of thousands of dollars of entitled property depreciation claims. At worst any type of tax depreciation claims altogether.

There is not just wide misunderstanding in the general public (which isn’t unusual as tax depreciation is specialised area), but also amongst industry professionals. This segment has two categories: quantity surveyors (also registered as tax agents, specialising in or offering tax depreciation services) and accountants. There can be a blur amongst this category but this will be explained later. Then there are property industry professions including real estate agents, property managers, mortgage brokers.

Personally, we here at BWK Group have come across countless situations whereby the enquiries were initially told that either ‘there is no point claiming’ or worse – “you cannot claim anything”. Sadly, these statements if acted upon without a second opinion would result in permanent forfeited claims year on year that otherwise could amount to tens of thousands of entitled tax claims for the difference of 40 years. Luckily in our case, we have prevented this from happening and have created many happy clients. Review our Google reviews here.

Unfortunately, at the most qualified category i.e. quantity surveyors and accountants, we have witnessed errors and incorrect information passed on to property investor taxpayers by this segment.

It is important to note that there are two components of depreciation; Capital Works and Plant and Equipment. This article is concerned with ‘second-hand plant and equipment’. So, keep in mind that any advice from others stating you can not claim because of rule changes is a red flag. They are potentially missing Capital Works allowances entitlements altogether. Specialised advice must always be sort and the ATO, under tax ruling (TR) 97/25 list quantity surveyors as appropriately qualified in the area of tax depreciation. Always be mindful of advice that will directly impact your financial situation. Following we have some examples that we were able to turn around for the better for our clients, after they were initially given poor advice from ‘others’.

Two examples come to mind that we have encountered and luckily rectified. The first being advice from a well-marketed Australian tax depreciation quantity surveying firm. The property in question was a circa 1992 built strata-titled apartment block in Fairfield, Victoria that was renovated. Initially, the property investor spoke to a this particular, well-marketed “Australian tax depreciation specialist” that informed them that there is no depreciation available for them with the said property. Luckily as it happened, their property manager told them to get a second opinion of us, BWK Group. Upon the enquiry over the phone with Mathew, a quantity surveyor with ten plus years of experience, that property investor within us asking 2 simple questions, was qualified to stand to gain at least $30,000 in tax claim deductions with a tax depreciation schedule. Upon finalising the tax depreciation schedule, they now have a report that entitles them to claim a total of $48,758. Going back to their initial advice from ‘others’, that initial encounter would have cost them dearly and forfeited all entitled tax claims had they never got a correct second opinion.

A second example included advice to a property investor from an accountant. In this instance the client was informed that there was ‘no point in claiming’ on their 2017 built apartment located in a two-storey apartment complex in Elwood, Victoria. In this instance the client remained in conversation with us, that was being swayed by her accountant in the end we were able to claim $250,800 combined deductions for her and her partner.

By now you have been informed of the far-reaching misinformation in Australia regarding tax depreciation of plant and equipment, including examples. Now for the guidelines that will hopefully make sense.

Generally speaking, POST May 9 2017 Budget Night, no ‘Residential’ second-hand ‘plant & equipment’ can be claimed via depreciation. Does not apply to Non-Residential properties and NO change to ‘building/capital works claims’ either.

There are always Exceptions:

CAN CLAIM:
– If in a ‘corporate tax entity’ e.g., Company

– If in Large Super Fund other than a Self-Managed Super Fund (SMSF).

– If purchased/ Signed Sales Contract PRE 7:30 pm 9 May 2017 (existing rules are grandfathered).

– If lived in (owner-occupier), then property became ‘income-producing’ and moved out PRE 7:30 pm, 9 May 2017.

CAN’T CLAIM:
– Any second-hand plant & equipment Post 7:30pm 9 May 2017

– If lived in (owner-occupier) and moved out POST 7:30pm 9 May 2017.

Of most concern to property investing taxpayers is the amount of incorrect information coming from various sources, that if acted upon would result on tens, if not hundreds of thousands of dollars in forfeited tax claims for the property investor. We have seen this to be the biggest concern in the industry at present regarding this topic i.e. property professionals with no specialisation of qualifications to provide technical advice regarding tax depreciation.

If you wish to discuss or get a second opinion (of which we have detailed above two examples of those lucky enough to receive it), fill in a no obligation tax depreciation schedule request here.