On Friday, the 14th of July, after a long wait, the Treasury Office issued a draft bill regarding how depreciation deductions for second-hand plant and equipment items will be treated moving forward.

Here are 9 key takeaways from this draft legislation:


1.If plant & equipment is included within a 2nd hand residential property, purchased (i.e. contact exchange date) after May 10, 2017, the buyer will not be able to claim depreciation on those “previously used” assets.


Let’s be clear, if you exchanged on a property prior to the Budget announcement on Tuesday 9th May 2017, you are not affected by these changes at all.


2.Buyers of brand new property will still be able to claim depreciation on both the building and the plant and equipment included within that purchase.


3.These planned changes only apply to residential property and as such, industrial, commercial, retail and other non-residential properties are not affected.


4.No change was made to the claims on the structure of the property, known as the capital works deduction or building allowance. This section accounts for an estimated 80 to 85% of a property’s construction cost. This is good news!


5.These changes do not apply if you purchase the asset(s) in a corporate tax entity, super fund or a large trust (300+ members.) These entities can still depreciate previously used assets in residential investment properties. SMSF unfortunately are affected

6.If you contract a builder to construct a house and it’s an investment property from the outset – you can still claim depreciation on the plant and equipment.


7.If a house is renovated whilst the owner was living in it, and then they decide to sell the house to an investor, it is assumed that the assets have been used and therefore depreciation cannot be claimed on those assets.


8.Renovation of properties that are currently being used as investments can continue to claim depreciation on the new renovation.


9.The most interesting point: Whilst investors purchasing second- hand property can now no longer claim depreciation on the existing plant and equipment, they will have the benefit of paying less capital gains tax when they sell the property.


How? Well, in summary, what you would’ve been able to claim in depreciation under the previous legislation, now simply gets taken off the sale price in the event you sell the property in the future.


Here is a simple working example:


Sarah acquires an investment property in December 2017 for $700,000 and included within this property was $40,000 of second-hand depreciating assets.
Because the property had been used before now, Sarah will not be able to claim depreciation on those assets.
In 2020, Sarah sells the building for $900,000 which also still has $20,000 worth of those original depreciated assets included within the sales price. Sarah can now claim a capital loss of $20,000 ($40k-$20k) for the depreciation she wasn’t able to claim during ownership.

According to the ATO investors need to keep records of the date you acquire the asset, dispose of the asset and any amount that would form part of the cost base.

It is important to remember that if someone purchases an investment property today that was built after 1987, they can still claim on the unclaimed building allowance component.

Appollo One Property Group clients receive a discounted rate for preparation of their fully comprehensive, ATO-compliant Tax Depreciation Report.


To find out if you are eligible to claim depreciation benefits or to request a quotation, contact Peter Foldes at Washington Brown at info@washingtonbrown.com.au