Rental Property Owners – New Rules!

Housing affordability was a major focus of the 2017 Federal Budget. Among the measures announced was a tightening of some of the deduction rules around rental properties as follows:

Rental Property Travel
Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental propety will be disallowed from 1 July 2017. Before this date, the rules were very generous and allowed an owner to claim everything from airfares, accommodation, overseas travel (in certain circumstances) and car expenses incurred when:
  1. Preparing a property for new tennants
  2. Inspecting the property during or at the end of tenancy
  3. Undertaking repairs, where the repairs are because of damage or wear and tear incurred while you rented out the property
  4. Maintaining the property (e.g. cleaning or gardening) while it is rented or available for rent
  5. Collecting the rent, and
  6. Visiting your agent to discuss your rental property.

In light of these changes, there are a few important take away points for property owners as follows:
  • Category (a), (c) and (f) expenses appear to be still claimable under the new rules (we will need to await the final legislation to confirm this)
  • This measure will not prevent investors from engaging third-parties such as real estate agents for property mamagement services. These expenses will continue to be deductible. Indeed, if the travel is costly (e.g interstate) then you may wish to engage third parties to undertake Category (b), (d) and (e) expenses from 1 July 2017 rather than you personally.

Restriction on Depreciation Claims
From 1 July 2017 “plant and equipment” depreciation deductions are now limited to outlays actually incurred by investors in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be “easily” removed from a property such as dishwashers and ceiling fans. This change was made to address concerns that some “plant and equipment” items are being depreciated by successive investors in excess of their actual value. Acquisitions of existing plant and equipment items will be reflected in the cost base for CGT purposes for subsequent investors…….

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