ATO Review of Rental Property Depreciation

Hi

The tax office have this week announced its early position on changes proposed to the issue of depreciation for rental properties.

The ATO has released 3 documents relating to its review of the effective lives of residential rental property assets:

Draft principles paper
Proposed effective lives with effect from 1 July 2004
List of assets and proposed effective lives


http://www.ato.gov.au/large/content.asp?doc=/content/42571.htm

http://www.ato.gov.au/large/content.asp?doc=/content/42602.htm

http://www.ato.gov.au/large/content.asp?doc=/content/42604.htm

Cheers

Dale

Difficult reading.

Is it just me, or is a paragraph

In the context of residential income-producing properties, the distinction between that which is “setting” and that which is “plant” remains valid: a residential unit [or house, flat, etc] will not ordinarily fall within the exceptional circumstances referred to’ in the previous paragraph. Thus, ‘the starting point ... is that a residential property will almost invariably (in the absence of exceptional circumstances) be the setting of the income-producing operations and will therefore not be “plant”.’ ‘That which forms a “part of the fabric” of the property, in a metaphorical sense, or in other words, that which is an “integral part of the structure of the premises” is therefore also not plant ... It is to be regarded as a part of the “setting” of the income earning activity.’

Click to expand...

difficult to determine the intent?

Do they hire people deliberatley to explain things clearly in a way to ensure that people will misunderstand?

Dale,

re the third article quoted.

1. How does that compare with the existing regime?

2. What does the "Div 43" mean? (aprat from the quoted "Div43 – indicates that a deduction may be available under Division 43 of the Income Tax Assessment Act 1997"

Hi Geoff

Division 43 is the section of the 1997 tax act that allows for a tax deduction for building write offs.

Please note, these articles are for comment and discussion and do not yet form part of the law. Therefore, it is way too early to comment with how it compares other than to say that a number of items formerly written off as plant will now be caught as part of the building and this just means lower depreciation claims for most investors IF the proposals are passed.

I guess it is a matter of wait and see . . .

Dale

geoffw said:

Dale,

re the third article quoted.

1. How does that compare with the existing regime?

2. What does the "Div 43" mean? (aprat from the quoted "Div43 – indicates that a deduction may be available under Division 43 of the Income Tax Assessment Act 1997"

Click to expand...

Do the Depreciation Schedules Reflect Rental Realities?

What the ATO schedules fail to realise and it is pertinent to depreciation, is the high tenant turnover in Australia which firstly, creates higher wear and tear and secondly requires that the rental premises be in a good, NOT WEARY, state of presentation for prospective tenants.

Many tenancies are for six months and the usual longest is for 12 months. I do not know the tenant turnover for particular cities but for some tenant categories eg student accommodation, it will always be high.

Tenants are often 'hard' on fit-out items without deliberately causing damage. That is why kitchens, whiteware and door hardware age quickly. Tenants have washed doonas and large floor rugs in our washing machines. Not conducive to long life of the appliance! Others have machined curtains and hung them out in the sun. Great for curtains.

Tenants have higher expectations of the standard of rental premises.

Another issue not recognised is that makers are building appliances etc with a finite age in mind as owners with (say) water heaters will find. We had an old Saxon water heater that lasted over 20 years but new heaters have shorter lives.

There are also shorter periods for obsolescence - we just replaced a five year old stove because the support bracket for the oven coil rusted out. The bracket and the bigger hob element were not stocked any more.

The problem with the ATO schedules is that it seems to have started with a result in mind and that affected the result.

Of course people can lobby their representatives, because I'm not so sure responding to the ATO 'discussion' papers is useful. Consultation at the end of a process doesn't impress anyone - just looks like a 'safety valve' for complaints.
Lplate