THE federal parliament has passed legislation to limit tax and depreciation deductions claimed by residential property investors along with a vacancy tax for foreign owners who leave homes unoccupied.

Treasurer Scott Morrison and Assistant Minister Michael Sukkar said the reforms will help address housing affordability and assist private renters.

The Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 will disallow certain deductions relating to residential investment properties.

Morrison said the changes disallow claims for travel expense deductions and limit plant and equipment depreciation deductions to assets not previously used.

Depreciation will only apply where the depreciating asset was acquired new – this reform is expected to raise $260 million over forward estimates.

The Treasurer said limiting plant and equipment depreciation deductions will remove the existing opportunities for items to be depreciated by multiple owners in excess of their actual value.

For second hand residential properties purchased after May 9, investor will only be able to claim depreciation for plant and equipment assets where the depreciating asset was acquired new for that purpose.

Napier & Blakeley national director of property depreciation and insurance Paul Mazoletti said the changes mean income tax deductions for second hand residential investment properties purchased after May 9 this year were effectively killed off.

On a positive note, Mazoletti said this may influence a boost in residential development as investors may be drawn to the higher deductions they can achieve by acquiring assets in new residential developments that are currently underway or planned into the future.

In another measure, the government will also disallow deductions for travel expenses related to owning a residential investment property.

Currently, travel expenditure for, but not limited to, the inspection or maintenance of rental property owned by a taxpayer, or travel expenditure to collect rent is deductible as it is considered to be incurred in gaining or producing assessable income.

Morrison said this is an integrity measure to address concerns that such deductions are being abused and prevent residential property investors from taking holidays at taxpayers’ expense.

The measure will raise $540 million over the forward estimates.

“Together, the travel and plant and equipment deduction changes will improve the integrity of the tax system and are estimated to generate $800 million in budget revenue over the forward estimates,” he added.

The bill also implements an annual vacancy charge on foreign owners of residential real estate where property is not occupied or genuinely available on the rental market for at least 183 days in a 12 month period.

Foreign owners will have to pay a fee starting from $5,500 for a property purchased for $1 million or less and failure to comply could result in a penalty of $52,500.

The Australia Taxation Office, responsible for residential real estate applications under the foreign investment framework, will administer the vacancy charge.

Published in Australian Property Journal
by Nelson Yap
15 November 2017