Treasury has released details for proposed cutbacks on the deductions for travel and household goods for residential investment properties as part of plans announced in the budget.
Treasurer Scott Morrison announced plans to eliminate travel expense deductions for negatively geared properties in May. While the legislation has yet to pass, it will be backdated to July 1, applying to all travel to residential investment properties, including inspections and maintenance.
The changes are also in response to concerns about the rising level of asset allocation being attributed to household goods in investment properties, which are then written off.
The items range from washing machines to fridges, air-conditioners, ovens and curtains, with Treasury saying the change “ensures that the reduction is targeted to situations in which there is a particular risk of overvaluation of previously used depreciating assets”.
The new laws will stop investors claiming deductions on second-hand goods in the property amid concerns that some people are using “excessive deductions” in a bid to reduce their personal tax bill. The changes do not apply to corporate tax entities, superannuation that is not self-managed, or large unit trusts.
“These amendments are intended to address incentives to obtain excessive deductions,” the Treasury briefing paper on “housing tax integrity” says.
From the start of this financial year “plant and equipment” depreciation deductions on negatively geared properties will be limited to new items. Depreciation will still be allowed on plant and equipment used or installed in a residential investment properties before May 9, budget night.
Treasury says there are “unintended incentives for individuals to move personal assets into rental properties” and gives an example of “Craig” who “purchases a new fridge, but rather than place this in the apartment, he uses it to replace his personal fridge, that he acquired a number of years ago for his personal use. He instead places his old fridge in the new apartment.”
He will no longer be able to claim depreciation on the old fridge in the apartment.
Treasury’s briefing paper says the problem is that goods are being purchased after being used by someone else “their value is less clear and there is more scope for the entity holding the asset to adopt a ‘refreshed’ valuation that increases the amount deductible”.
Public consultation on the draft legislation runs until August 10.
The changes are expected to save the government $260 million over four years.
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