6 / April / 2018

Two ways the latest tax changes affect residential property investors


Posted 6 April 2018

As we move closer to the end of the financial year, it's important to keep in mind the latest tax changes for property investors, which mean that individuals, self-managed superfunds (SMSFs) and Discretionary Trusts wishing to invest in residential real estate will essentially see a reduced after-tax return on investment.

As explained by SRJ Walker Wayland, these measures were implemented on 1 July, 2017 as part of the 2017/18 Federal Budget, and their purpose is to assist with the growing problem of housing affordability.

SRJ Walker Wayland takes a quick look at what these changes might mean for investors in the Moreton Bay Region.

What do the tax changes mean for property investors?

Travel is denied a deduction:

From 1 July, 2017 affected taxpayers are denied a deduction in relation to travel, where the travel is:

  • Related to gaining or producing assessable income from residential premises; or
  • Not necessarily incurred in carrying on a business for the purpose of gaining assessable income 

These new measures deny all travel costs incurred in relation to a residential rental property including, but not limited to, those related to:

  • Inspecting the property
  • Maintaining the property
  • Attending an owner’s or body corporate meeting
  • Collecting rent, etc. as the sole purpose of a trip 

The above costs are also prevented from forming part of the cost base of the property for capital gains tax purposes or being deductible over five years under the black hole (business related capital) cost rules.

Depreciation deduction limits now apply:

From 1 July, 2017, depreciation will now essentially be limited to assets that have not previously been used in the residential investment property.

Some depreciation deductions are reduced under the new rules; specifically, where the taxpayer didn’t hold the asset when it was first used or installed for use, unless certain criteria are met.

These new rules in respect of depreciation are complex to follow and require attention in relation to depreciation claims moving forward.

However, care will still be required in relation to assets held or purchased in the event that these assets are scrapped or replaced; they could generate a capital loss to be carried forward to ultimately offset any potential capital gain on the property.

What should you do to minimise these effects?

In summary, travel costs in relation to producing assessable income from residential rental properties will be denied a deduction from 1 July, 2017.

Additionally, the after-tax impact for property owners with investments in residential real estate could be significant, due to the denial of depreciation deductions.

SRJ Walker Wayland recommend that, if you hold a residential investment property, you contact your advisor for a more detailed review of how the changes may impact you – and how you can minimise this impact.