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Rental properties and CGT on affordable housing

By Emma Smith

Article originally published by West, Carr and Harvey Accountants

Published with permission

The Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties from 1 July 2017. The Government will disallow travel expenses related to inspecting, maintaining or collecting rent for a residential rental property from 1 July 2017. The CGT discount for individuals will be increased from 50% to 60% for gains relating to investments in qualifying affordable housing from 1 January 2018.

Restriction on depreciation deductions
From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property.

These changes will apply on a prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30 pm (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

No deduction for residential rental property travel expenses
Travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed from 1 July 2017. This measure will not prevent investors from engaging third parties such as real estate agents for property management services. These expenses will continue to be deductible.

Increased CGT discount for investments in affordable housing
From 1 January 2018 the CGT discount for individuals will be increased from 50% to 60% for gains relating to investments in qualifying affordable housing.

To qualify for the higher discount, housing must be provided to low to moderate income tenants, with rent charged at a discount to the private rental market rate. Tenant eligibility will be based on household income thresholds and household composition.

The affordable housing must be managed through a registered community housing provider and the investment held for a minimum period of 3 years. The additional discount will be pro-rated for periods where the property is not used for affordable housing purposes.

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