Rental property owners face new limitations for second-hand asset depreciation claims
From the 2018 income year, restrictions for depreciation claims have applied in respect of residential rental properties owned by certain landlords (i.e., non-excluded taxpayers) including individuals, discretionary trusts, SMSFs, and most closely held partnerships and unit trusts.
Broadly speaking, where the restrictions apply, depreciation (i.e., decline in value) deductions cannot be claimed from 1 July 2017 in respect of a ‘previously used’ depreciating asset (i.e., a second-hand asset) acquired after 7.30 pm AEST on 9 May 2017 (either for a residential rental property or as part of the acquisition of such a property). Additionally, there are a number of transitional rules (further restricting deductions for certain assets acquired prior to 9 May 2017) and exceptions to navigate. Refer to S.40-27.
Importantly, there are no changes to the rules about deductions for the decline in value of new depreciating assets in residential rental properties (i.e., the decline in value deductions are still available). Additionally, applicable capital works write-off under Division 43 also remain unaffected.
Similarly, there are no changes to the rules about deductions for the decline in value of depreciating assets in a residential rental property that have been installed or used for a taxable purpose other than the purpose of deriving residential rental income (e.g., where solar panels are installed on a rental property so as to derive assessable income from electricity generation).