On the 15 November 2017, the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 was passed through Parliament. This is the most significant reform in the residential depreciation sector for the past 15 years.
The amendments limit the depreciation deductions that owners of second-hand residential properties may claim on their investment properties.
Depreciation on properties are split into two components, capital works and plant and equipment allowance. For second hand property contracts settled after 9 May 2017, the investor can no longer claim depreciation for plant and equipment purchased by the previous owner. They can however still claim depreciation for plant and equipment if it is purchased and installed after settlement date.
This does not affect investors who purchased new / off the plan properties.
The ownership structure you choose when buying an investment property will impact your overall financial position. Trusts (e.g. family, discretionary or unit trust) and self-managed superannuation funds (SMSFs) are popular structures due to the asset protection, tax benefits and estate planning advantages they offer.
However, we often see these advantages being outweighed by the tax and stamp duty consequences (such as double transfer duty) because incorrect trust details were recorded on the contract. Also, you may lose any leverage you have gained in negotiation of the price and terms of the original contract if you have to ask the seller for a new contract with the correct name.
It is therefore important to seek legal advice before you sign a contract to ensure that the entity and trust details are correct. You can find experienced lawyers in your area who will be able to assist.