Sorry but I keep getting asked about the grandfathering provisions in the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 that relate to claiming Division 40 depreciation on assets in rental properties. So this is the link I can just send to those asking me this question.
The Bill states this…
13 Application of amendments
(1) The amendments made by this Schedule apply to an entity, for income years commencing on or after 1 July 2017, for assets:
(a) acquired by the entity under contracts entered into; or
(b) otherwise acquired by the entity;
at or after 7.30 pm, by legal time in the Australian Capital Territory, on 9 May 2017.
(2) The amendments made by this Schedule also apply to the entity, for income years commencing on or after 1 July 2017, for any other asset acquired by the entity, if:
(a) the asset’s start time is during the income year that includes 9 May 2017 or during an earlier income year; and
(b) no amount can be deducted under Division 40, or Subdivision 328-D, of the Income Tax Assessment Act 1997 by the entity for the asset for the income year that includes 9 May 2017.
Therefore, from this application section we know that:
- Generally, if you purchased the asset or the rental property with the assets in it before 10 May 2017 you can claim Division 40 depreciation.
- The reason there is the word “Generally” in the first point is that there is a situation where you bought the assets before 10 May 2017 but you won’t be able to claim Division 40 depreciation. This is where you bought the property or the assets before 10 May 2017 BUT in the 2016/17 year (normally 1 July 2016 to 20 June 2017) you did not use the property or the asset as or in a rental property.
An example of item 2 would be where a taxpayer owns one home which they live in for years. In 2018 they decide to move to a bigger house but keep their old house as a rental property. They cannot claim Division 40 depreciation on the old property as in the 2016/17 year, the property was not a rental property.
So in summary, these new rules apply to properties that were both purchased before 10 May 2017 AND where used as a rental property for some time in the 2016/17 tax year.
Checklist to ask if someone asks you if they can claim Division 40 tax depreciation on a residential rental property:
- Is the entity that owns the property a company, a large super fund (not an SMSF) or a large investment vehicle? If so, they can claim Division 40 depreciation deductions.
- Are they carrying on a business which involved 30+ of properties taking up most of their week in managing? If so, they can claim Division 40 depreciation deductions.
Neither of these two will happen…
- Was the property purchased before 10 May 2017 AND if I look at your tax return I can see you claimed deductions on the property as a rental property for some time in the 2016/17 tax year? If so, you can claim Division 40 depreciation deductions.
- Is the property “new residential premises” when you purchased it and you have not used it as your residence or stayed in it for more than a couple of nights? If so, you can claim Division 40 depreciation deductions.
- Is there any depreciable assets that have never been used by others before (you bought them from a retailer) that you have never used privately (including if you stayed in the property for more that one or two nights)? If so, they can claim Division 40 depreciation deductions on just those depreciable assets.
Remember, if you are claiming Division 40 deductions under item 2 or 3 above, and you stay in the property, or let your family stay in the property for free, for a week, there will be no future depreciation deductions.
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