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Growing trend with property investors put tax deductions at risk

ATO and Bradley Beer

New market research indicates that Australian property investors are compromising their access to tax deductions, sometimes in the order of thousands of dollars. 

Data from BMT Tax Depreciation for the 2018-19 financial year to date shows that over one in four people had lived in their property prior to renting it out. This represents a jump of about 2.3 per cent over the previous financial year.

New laws may be confusing investors, according to BMT chief executive Bradley Beer.

According to rules introduced in 2017, investors are not permitted deductions for the decline in value of previously used plant and equipment in rental premises used for residential accommodation. Therefore, investors are potentially risking tax deductions by living in and installing new assets.


“Our data suggests that a growing number of people are opting to live in a property while renovating and before renting it out. If they choose to make these types of additions to their property during this time, they could lose out on thousands of dollars of tax deductions,” said Mr Beer.

Have a good reason

Unless they have a good reason, Mr Beer said that investors who are planning on installing new plant and equipment assets should make these additions after they move out of the property and it has been listed for rent.

Capital works deductions for structural items such as new walls, kitchen cupboards, toilets and roof tiles are unaffected by the legislation changes and can be claimed by owners of income-producing investment properties.

“The new legislation does not affect buyers of new properties, so these properties typically hold the most lucrative value for investors from a tax perspective,” Mr Beer said.

“This fact, and the new stock that has come on the market in recent years, may be contributing to the increased demand for new investment properties over secondhand properties.”

Tax relief still on offer

Mr Beer believes there are still lucrative tax deductions on offer for most investment properties.

“We found an average of $8,212 in deductions in the [2017-18] financial year for all residential investment properties,” he said.

“Tax depreciation can dramatically increase the cash flow from an investment property, so savvy investors should look to attain a basic understanding of the rules and assemble a strong team of advisers to help take advantage of them.”

Growing trend with property investors put tax deductions at risk
ATO and Bradley Beer
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