Cladding – Tax Deductions – Repair or Improve – ATO Determination
Recently the ATO has determined the replacement of ACC (Aluminium Composite Cladding), is in fact an improvement to your property and not a repair.
We have several clients who are now reviewing their ACC on their sites and discussing with their fire engineer a solution to rectify their property and make safe moving forward.
The ATO have clearly said these costs will be a capital improvement for the purpose of Division 43 of the ITAA 1997 (refer to the link further below).
In financial modelling, this means, if the new cladding installed cost $1m, you can depreciate this cost from completion of installation over the next 40 years (2.5%) which equates to a deduction of $25,000 per year, as an example.
An additional deduction may be allowed to write off the existing cladding, if the original cost and installation was completed after 1979 on hotels (40 year life), commercial, aged care, industrial buildings and similar construction which commenced after 16 September 1987 (2.5%). As we have qualified quantity surveyors registered on the Tax Practioners Board we can provide this deduction for you.
Below is the link from the ATO which provides some more clarity and discussion. Continue reading
Tax Q&A: Inheritance of Existing Investment Property
Q: I have a question related to depreciation. I bought a new apartment in July 2016 and lived in it for 13 months. I started to rent the apartment from the end of October 2017. My question is, following the change to depreciation rules, am I able to claim depreciation for plant and equipment (dishwasher, fridge, etc)?
The property was brand new when I bought it, so I’m hoping depreciation benefits will still be available. I also have a query regarding depreciation and inheritance. If a married couple have an investment property and they are claiming plant and equipment depreciation, and then one spouse dies, can the surviving spouse (who inherited the existing investment property) continue to claim the plant and equipment depreciation?
Many thanks, Sam
A: With regard to your first question, unfortunately you won’t be able to claim depreciation on existing plant and equipment assets due to the recent change in the depreciation legislation in May 2017.
These changes affect second-hand investment properties that were purchased and/or rented after 1 July 2017, as in your case. In these situations, plant and equipment assets are considered pre-existing and previously used.
The depreciation on your plant and equipment assets began when you purchased your property.
But they only became depreciable against your income when you started to rent out the property after 1 July 2017. You can claim plant and equipment items such as a new dishwasher, fridge, etc., if you bought these new and installed them in your second-hand property.
“You won’t be able to claim depreciation on existing plant and equipment assets due to the recent change in the depreciation legislation” Continue reading
