07 Feb 2005 - Tax Office Reassures Landlords on Depreciation
The property industry has welcomed an assurance from the Tax Office that though new depreciation rules on investment properties will in general not be applied retrospectively.
“We have always said we would only be adjusting blatant [false] claims,” ATO assistant deputy commissioner Elizabeth Goli said.
“The date of the effect of the rental property determination is for claims made after July 1, 2004.”
ATO and Property council of Australia representatives met in Brisbane last Friday to nut out differences over the ruling, which outlines the length of time over which rental property assets can be written off.
The ruling was part of the Tax Office moves to clamp down on over claiming of rental-property deductions after a blow-out in recent years.
The Tax Office maintains it is not seeking to reduce taxpayers' access to the deductions, only to clarify the conditions under which certain items can be claimed.
The property Council had claimed the ATO ignored industry concerns when preparing the ruling, which outlines the rental-property assets that can be depreciated under normal rules and those to be written off over a longer period.
They were particularly concerned that the ruling was in effect retrospective, and could increase tax on investments made years ago.
Property Council executive Peter Verwer said he would make further submissions to clarify his concerns but the meeting with the ATO had been constructive.
“The Tax Office has said the bulk of the ruling is intended to be prospective,” he said.
The ruling sets out the allocation of rental-property items between those that can be depreciated (known as plant) and those classified as capital or structural improvements, held to form part of the building itself.
The distinction is important because so-called capital-works items are written off at a much slower rate, generally just 2.5 per cent a year.
The ruling transfers some items are from plant to capital works but the ATO points out that it also extends the depreciation period for some that can still be considered equipment, such as washing machines.
Rental-property tax deductions such as depreciation and interest expenses exceed rental income by more than $1.2 billion.
Though the government will not touch the politically sensitive issue of deductibility of interest expenses on negatively geared properties, Tax Office attention has turned to claims for depreciation deductions on rental properties.
Source AFR 27th Jan 2005