Impact of New depreciation

[stargazer]

Hi

Can someone explain the true impact of the new depreciation law as of 1/7/04.
Is purchasing new property still have the same benefit re: as in non cash deductions

Will this have an impact on the Positive cashflow type of properties as in Margaret Lomas style of investing.

regards
BC

 

[DaleGG]

HI

The new rules will mean that some properties will see a little less depreciation each year in terms of the "chattels" and a little more in terms of the "building".

In simple terms, it will mean a little less tax refund for properties bought after 30 June 2004.

Dale

 

[gazza]

Dale

What about properties where exchange of contracts occured prior to 30 June 2004 but settlement occurs after 1 July 2004?

Gazza

 

[DaleGG]

Hi Gazza

Off the top of my head I would imagine that the new depreciation rules apply.

Dale

 

[ntowill]

According to the latest ruling on the "effective lives of depreciating assets" it states that it only applies to assets aquired on or after 1 July 2004. However this is only applies to the assessment of the effective life of the asset (eg. 5 yrs, 10 yrs, etc). If the rulings states that something cannot be claimed then that applies retrospective. Lots of illogical reasoning and conflicting arguments that keep Quantity Surveyors like me busy!

Hope this helps a little.

Nathan

 

[stargazer]

Thanks all

much appreciated

BC

 

[nelson]

The changes won't have a huge impact. Buyers of new apartments will be the hardest hit. Their depreciation claims could fall by 10-15% per year. Of course, they'll get the depreciation eventually, but it may take 40 years.

Buyers of older apartments and particularly houses may see their claims increase. This is because the effective lives of things like stoves and hot water heaters have come down i.e. they're depreciated more quickly.

The new rules apply to assets acquired after July 1. I asked the ATO recently whether the date of aquisition was the date contracts were exchanged (went unconditional) or whether it was the settlement date. They said it was the contract exchange date.

 

[gazza]

Nelson

My accountant was also of the opinion that it was the contract exchange date rather than settlement date.

Dale , can you confirm which date is relevant? Originally you posted that "off the top of your head, it was the settlement date"

Gazza

 

[ntowill]

You are right. The exchange date determines which laws/rulings apply, but of course you can only start depreciating the assets from the date of settlement. If you exchanged some time in June and settled after July, the old depreciation rates apply.

You should also note that not only has the taxation comissioner changed the rates of depreciation, they have also reduced the number of things you can claim. For example, you used to be able to depreciate fire sprinklers (at 7.5%), but now they have removed it. You now claim it as part of the capital works - ie. 2.5%. As Nelson said, it really only affects unit owners (both new and old units), not houses.

Nathan
Quantity Surveyor

 

[nelson]

They have also doubled the effective life of elevators, which again obviously only impacts upon unit owners. Ducting is also now part of the building - lots of that in apartment buildings. And the effective life of floating timber floors is also now 15 years as opposed to the 10 years which was the commonly used life. Again, floating timber floors are found in many newer units.