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Limit on tax deduction for residential property investments

Amongst other measures announced in the 2017 Federal Budget was a limitation on certain tax deductions available to individual residential property investors.

Under the first measure, depreciation on fixtures and fittings (eg air conditioning, stoves, white goods, carpets, etc) will be limited to the original purchaser of these items. Subsequent owners of the residential investment property will only be able to claim depreciation on such items which they purchase themselves.

Under the second measure, a tax deduction will no longer be allowed for travel expenses incurred by residential investment property owners in connection with inspections or maintenance of their residential investment property. These previously tax-deductible costs could include airfares and accommodation incurred by the property owner in the course of managing their investment. Owners of residential investment property can have these tasks performed by a real estate agent or tradesman as appropriate, and such costs will continue to be tax deductible. In addition, where an investment property owner chooses to still travel to perform these tasks themselves, the non-deductible travel expenditure cannot be added to the investment’s cost base for capital gains tax purposes.

Both these measures apply from 1 July 2017. Some transitional relief applies where depreciable items were used or installed in a residential investment property as of 9 May 2017. These measures have now been passed in both houses of parliament. Affected clients should consult their tax adviser for further information.

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