This year’s federal budget has been relatively low-key when it comes to housing, as the furor around housing affordability has quietened down and house prices plateau across the country.
The main change coming out of last week’s budget that could impact investors is a new focus on those denying deductions associated with holding vacant land where the land is not genuinely held for the purpose of earning income. This is expected to raise an extra $50m.
The lack of attention to property in this year’s budget is a big change from last year’s, which was significantly housing focussed and introduced two new housing measures, both of which signalled pretty bad news for investors across Australia.
These changes focus on negative gearing and depreciation and leave property investors thousands of dollars out of pocket per year. Although the laws were part of 2017-18’s budget, this is the year that investors will really start to feel the pinch of those measures.
Farewell travel perks
As of January this year, there’s now a blanket ban on travel expense claims, both inter and intrastate, meaning landlords can wave goodbye to deductions for travel to inspect, maintain or collect rent on a property.
In short, the days of cheekily tagging on a mini break to landlord responsibilities are well and truly over.
In this case, the few have affected the many. Some landlords have been really stretching the boundaries of the travel expenses, particularly if their property is in a nice location. However, most don’t milk it and legitimately just want to check their property over.
The Property Couch pair (Ben Kingsley, left, and Bryce Holdaway, right) advise property investors to ‘make the most of all the legal deductions available to them to to maximise cash flow and self-fund retirement’. Picture: Supplied
This major change highlights last year’s federal budget’s focus on integrity measures and was designed to reduce the pressure of housing affordability.
It’s predicted that the clampdown on Australia’s 1.3 million negative-geared landlords will generate an additional $540m in revenue for the government over four years. On average, landlords are expected to be $4200 worse off per year.
REA’s Chief Economist Nerida Conisbee feels that imparting changes to negative gearing needs to be handled with care. Picture: Supplied
According to REA Group Chief Economist Nerida Conisbee, the government should be moving carefully with changes to negative gearing to ensure it doesn’t make a dint in the supply of rental housing.
“While not an immediate problem in places such as Sydney and Melbourne, in cities such as Hobart and regions such as the Gold Coast, we have a shortage of rental housing. This is being exacerbated by the rise of short-term rentals, as well as a general slowdown in investor activity,” she says.
NEGATIVE GEARING EXPLAINED…
Combined with changes to capital gains tax, reforming negative gearing could make the Australian housing market more equitable and sustainable. That’s the plan anyway.
Hitting the pocket, bit by bit
The other key change (and another unpleasant surprise for landlords) focuses on depreciation on household items.
As of 1 July 2017, buyers of existing investment properties who bought after May 9, 2017 cannot claim for depreciation for items – such as air conditioners, carpet or solar panels – in the home if they did not pay to install or replace them.
Previously, investors who bought established properties could continue to claim depreciation on those types of items.
While this may not sound like too big a deal, it could prove costly in the short term as property investors tend to need these deductions early on as opposed to further down the line.
BMT Tax Depreciation CEO Bradley Beer says the change in depreciation could mean thousands of dollars less for property investors.
“According to our analysis over the first five years of ownership, the new law will result in an average loss of around $4236 in depreciation deductions each year for those impacted,’’ he says.
“This legislation effectively renders the value of fairly new items to zero, which is an odd thing to do and does affect the investors hip pocket and distorts the market a little.”
READ MORE:
SIMPLE REASON NEGATIVE GEARING WILL NEVER BE SCRAPPED
NEGATIVE GEARING REFORMS COULD PROTECT MUM AND DAD INVESTORS
OTHER COUNTRIES WITH NEGATIVE GEARING DON’T SHARE AUSTRALIA’S PRICE PROBLEMS
For more from The Property Couch, visit thepropertycouch.com.au or subscribe to The Property Couch podcast, available on iTunes or Android.
The Property Couch provides a general opinion based on current market conditions. These opinions should not be treated as investment advice. Always obtain advice based on your individual circumstances.
