Tax Talk – Rental Properties, new rules to the game



Playing Monopoly with ever-changing rules

We all have different rules for monopoly, a favourite in my house is where all fines from the game are put in the middle and whoever lands on ‘Free Parking’ gets the loot.

Of course, no one can forget the $200 of cold hard cash we get just for lapping the board.

But what happens when the rules change mid way through the game. Well, that is what is happening for rental property investors this coming tax time.

The 2017/2018 Budget, handed down May 2017, had some rule changes that will need to be considered when preparing your tax return for 30 June 2018.




No $200 for doing a lap

Travel expenses to inspect your rental properties will no longer be deductible in your tax return. For investors that are carrying on a business, this deduction may still be allowed, but mum and dad investors can no longer claim this as a legitimate deduction.

What does this mean?

For many investors, this means that undertaking travel to inspect their property, collect rent or carry out general maintenance, this expense is no longer deductible. Essentially, travelling around the board to inspect your property will no longer entitle you to the $200 for passing Go.



Not all of the Free Parking is yours

Changes to depreciation claims for rental properties are not as transparent for monopoly players.

Prior to May 9th 2017, investors were able to obtain a depreciation report for a rental property where surveyors would include plant and equipment in the property such as fixtures and fittings, white goods, and other items in addition to the building itself.

The new rules state that plant and equipment on your rental can only be claimed if you actually incurred the expense.

How does this work?

If you bought a house with a dishwasher in the kitchen, you cannot claim a deduction for depreciation over the wear and tear on the dishwasher, as this was purchased with the house.

If the dishwasher packs it in, and you buy a new replacement, this expense is fully deductible, as you are maintaining the property to the initial purchase condition.

If you buy a better-quality dishwasher, this expense is considered an improvement and therefore a capital expense, and claimed over a number of years through depreciation.

In terms of monopoly, if you land on Free Parking, you only receive the money that you put on the table, not any other amounts that were put there by others before you.





In a nutshell…

Playing by the rules can be difficult when they are ever-changing.

Remember though, that getting in to any investment for the tax benefits is usually fraught with danger. Taxes and federal budgets are a constant work in progress, with the only stagnant rule of taxation being that there will always be ground for changes.

More importantly, remember that no body ever won monopoly just with the Free Parking and $200 for passing ‘Go’.



– Karen Patterson