Article provided by BMT Tax Depreciation

Don’t sell yourself short on Capital Gains Tax

Capital Gains Tax has forever been a complicated topic for property investors to fully understand.

CGT was introduced in Australia on the 20th of September 1985.

It is a tax that is payable on the difference between what it cost you to purchase the asset compared to the amount you received when you disposed it.

Changes to depreciation legislation, as outlined in Treasury Laws Amendment (Housing Tax Integrity) Bill 2017, limit owners of second-hand residential properties purchased after 7:30pm on the 9th of May 2017 from claiming plant and equipment depreciation on previously used assets.

Newly purchased plant and equipment assets installed and capital works deductions for the structural component of the building can still be claimed as normal.

Under the new legislation a capital loss, or capital gains tax Event as explained under section 104-235 of the Income Tax Assessment Act of 1997, can be claimed when an asset is disposed of for less than its original cost and depreciation claims for the asset were denied because of the recently amended depreciation legislation..

The scenarios where the capital loss schedule becomes crucial include:

  • When an asset is scrapped during ownership, CGT Event K7 can be used to establish a capital loss in that year, even if the property was not sold
  • Where there is a partial or full CGT main residence exemption. Even though the property was a main residence they may still be eligible for a CGT Event K7
  • When the contract date and settlement date for the sale of the property occur in separate financial years. The normal capital gain or loss from the property (CGT Event A1) is calculated in the financial year of contract exchange, where as the CGT Event K7 is calculated in the year of settlement

It is more important than ever that property investors consult with a specialist Quantity Surveyor and Accountant to ensure their claim is correct.

Download our whitepaper ‘Essential facts: 2017 Budget changes and property depreciation’ to learn more about the latest capital gains tax and budget changes.

ATO statistics provide insight for property investors

During the 2015-2016 financial year, just under 3 million property investors claimed deductions relating to their rental property.

According to the ATO statistics, investors claimed a total average depreciation deduction of $3,650 during the 2015-2016 financial year. However, BMT Tax Depreciation found our clients an average total depreciation deduction of $9,099 during the same financial year.

During 2016-2017, BMT saw a slight decrease in the total average depreciation claim to $8,972. However, this decrease is to an extent due to a number of older properties nearing the end of their forty-year effective life.

Despite the changes that have occurred to depreciation legislation, we are still finding our clients an average of $8,893 in deductions during the 2017-2018 financial year for all residential properties.

Contact us today for expert guidance on what you can claim to ensure you’re not missing out on any valuable deductions.

Depreciation deductions you’ll flip for

Renovating or has become a huge trend in Australia, especially on the eastern seaboard where according to CoreLogic almost 7 per cent of transactions in Sydney, Melbourne and Brisbane were sold shortly after purchase following a renovation.

The legislation states that investors who purchase second-hand residential properties after 7:30pm on the 9th of May 2017 cannot claim depreciation on pre-existing plant and equipment unless the property is deemed to have been substantially renovated or is brand new.

Below are some examples of structural and non-structural works, that in combination could be considered substantial when property flipping:

  • Structural: altering, removing or replacing foundations, floors, supporting walls or part thereof (interior or exterior), lifting or modifying roofs, replacing existing windows or doors where brickwork is altered (single to double door)
  • Non-structural: replacing electrical wiring or plumbing, replacing, removing or altering non-supporting wall

So, if a property is considered to be substantially renovated before it is sold, then the plant and equipment depreciation can be claimed on all the removable and mechanical assets by the new owner.

Capital works deductions on the structure of a building including any fixed and irremovable assets were not affected by the new legislation and generally make up 85 to 90 per cent of the total claimable amount. Current investors can continue to claim these deductions for both existing and new additions, regardless of when the work took place.

What’s happening in retail

Retailers have also experienced changes relating to competition, external economic influence, economic influences, online shopping and the market in general. 

Right now we’re experiencing the “Amazon Effect” and also witnessing how Amazon’s arrival in Australia is impacting the market.

While we’re not seeing an end to retail by any means, from our perspective we are most certainly in the midst of an evolution.

According to JLL the retail sector is currently going through a period of adjustment. Savvy businesses are revising their business models to reflect changes in technology, the globalisation of the market and changing trends through generations.

Furthermore, many retailer investors are refining their portfolios, adjusting exposure to different asset types and seeking to diversify to improve their long-term risk profile.

These changes are helping to manage risks, while also creating opportunities and driving greater transaction activity in the market.

With a large number of products now online and often available at a cheaper price, physical stores are focusing on differentiating their product offering and are looking to give consumers an experience, product, service or atmosphere they cannot get online.

An example of this is shopping centres that offer unique experiences and services such as entertainment, food services, medical centres, gyms and other health facilities.

It’s also apparent from the large amount of capital being invested into the redevelopment of major shopping centres nationwide.

With all these market changes, it’s more important than ever that retailers remain competitive and manage their cash flow wisely.


Article provided by BMT Tax Depreciation. Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. 

Please contact 1300 728 726 or visit an Australia-wide service.