Rental property deduction restrictions: 2017 Budget

As part of the Government’s agenda to facilitate affordable housing, the Budget will be implemented starting on 1 July 2017.  It proposes removal of a number of deductions in relation to investment properties.

The Housing Tax Integrity Bill amends the ITAA 1997 to implement 2 measures announced in the 2017-18 Federal Budget. Firstly, denying deductions for travel expenses concerning residential premises. Secondly, restricting depreciation deductions for second-hand assets used in residential rental properties.

Rental properties – travel expenses

Investors will no longer be able to claim tax deductions for travel expenses from July 1 2017. This relates to inspecting, maintaining or collecting rent for a residential rental property.

A residential premise (property) is land or a building that is:

  • occupied as a residence or for residential accommodation
  • intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation.

Under the new legislation, you are no longer able to claim any deductions for the cost of travel you incur relating to a residential rental property unless you are carrying on a business of property investing or are an excluded entity.

An excluded entity is a:

  • corporate tax entity
  • superannuation plan (not a self-managed superannuation fund)
  • public unit trust
  • managed investment trust
  • unit trust or partnership (all of the members which are a type of entities listed above)

Rental properties – depreciation deduction

From 1 July 2017, the Government will also limit ‘plant and equipment’ redepreciation deductions to outlays actually incurred by investors in residential real estate properties.

The Budget papers state that these are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans. The associated Treasurer’s press release also includes carpet as an item that will be affected by this measure. 

This is described as an integrity measure to address concerns that some ‘plant and equipment’ items are being depreciated by successive investors in excess of their actual value.

Investors who purchase these 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 purchases made by a previous owner of that property.

The net result of this measure is that only the person who actually pays for the asset will be able to claim its depreciation deduction. Subsequent owners wont inherit the written-down value of any such assets, nor presumably will taxpayers be entitled to a depreciation deduction for assets for which they have not provided any consideration. 

Once again, this measure only applies to residential property, and not other forms of business related property investment. 

The amendments do not affect the claiming of (Div 43) capital allowance deductions.

The exceptions that apply in relation to the travel deduction restriction also apply to the depreciation deduction limitation.

Tax Benefit

However, there will still be some tax benefit with these asset items. But investors will need to be patient to benefit from them. Acquisitions of existing plant and equipment items will be reflected in the cost base for CGT purposes for subsequent investors. Therefore, the cost of these items will have some tax benefit when the property is ultimately disposed of. However, there will not be an immediate tax benefit claimed each year until the end of the assets’ effective life.  

For more information on these changes you can contact us at 02 4732 3844 or visit to discuss your queries with one of our tax experts.