When can a property investor claim for plant and equipment?
There is much confusion regarding whether plant and equipment can be claimed in residential property investments.
This confusion directly impacts the property investor / Australian taxpayer (individual or otherwise). To what extent is greatly dependent on where one gets their information and advice from.
ATO’s Treasury Laws Amendment ‘Housing Tax Integrity Bill 2017
This confusion came to be, post-May 9, 2017, ATO’s depreciation rule changes (i.e. ATO’s Treasury Laws Amendment ‘Housing Tax Integrity Bill 2017‘), whereby the ATO deems ‘existing plant & equipment does not qualify for deduction due to being deemed previously used’.
Note, this rule only applies to residential investment properties, not commercial properties and to what extent it impacts the residential property investor is dependent on key dates pertained to their property acquisition.
We have saved property investors the heartache and headache…
Plant and Equipment depreciation claim guidelines
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, however.
– 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.
– Any second-hand plant & equipment Post 7:30 pm 9 May 2017
– If lived in (owner-occupier) and moved out POST 7:30 pm 9 May 2017.
The good news, BWK Group has positive real-life examples provided later in the article that occurred from clients obtaining a second opinion from a quantity surveyor.
Misguided information acquired by would be depreciation clients
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.
Industry confusion on plant and equipment claims
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.
BWK Group has 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.
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.
Two main components of property depreciation
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 ‘unqualified others’ stating (or any depreciation) 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.
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 damage and neglect provided) to the client from advice from an industry-professionals that should remain nameless.
BWK Group’s examples of correct depreciation information
The first being incorrect depreciation advice from a well-marketed ‘Australian Tax Depreciation Quantity Surveying firm (QS)’.
- 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 this particular QS firm 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 BWK Group.
Upon the depreciation enquiry, over the phone, BWK Group provided favourable advice whereby they stood to gain at least $30,000 in tax claim deductions with a tax depreciation schedule to the would-be-client by asking 2 simple questions.
- Upon finalising the BWK Group 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 (i.e $48,758) and forfeited all entitled tax claims had they never got a correct second opinion.
The second example of incorrect depreciation advice to a property investor occurred from the client’s 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.
- Fortunately, this client remained in conversation with us, but they were being swayed by her accountant.
- In the end, they had confidence in our advice. As tax depreciation specialists, BWK Group were able to make it possible for the client to claim $250,800 combined deductions for her and her partner.
The correct depreciation advice pays off
By now you have been informed of the far-reaching misinformation in Australia regarding tax depreciation of plant and equipment, including examples.
Of most concern to property investing taxpayers is the amount of incorrect information coming from various sources (we explaining this more here), that if acted upon would result in 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 or qualifications to provide technical advice regarding tax depreciation.
If you are a property investor (or representing one) and wish to discuss or get a second opinion on tax depreciation fill in a no-obligation tax depreciation schedule request here.
Find out about our other services here.