Proposed Federal Budget Measures

 

Following the announcement of the Federal Budget, the AIQS is aware of potential changes to what is allowable for depreciation of plant and equipment for residential and retail properties. 

The AIQS will be working collaboratively with the ATO in explaining and implementing the new measures following the release of the legislation.





The following are the relevant sections of the proposed budget measures:

 

Budget 2017-18 – Budget Paper 2 – Budget Measures 2017-18 – Part 1: Revenue Measures

Extending the immediate deductibility threshold for small businesses

Revenue ($m)

 

2016‑17

2017‑18

2018‑19

2019‑20

2020‑21

Australian Taxation Office

..

‑950.0

50.0

250.0

 

The Government will extend the 2015 16 Budget measure Growing Jobs and Small Business — expanding accelerated depreciation for small businesses by 12 months to 30 June 2018 for businesses with aggregated annual turnover less than $10 million. This measure is estimated to have a cost to revenue of $650.0 million over the forward estimates period.

Small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2018. Only a few assets are not eligible (such as horticultural plants and in house software).

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).

The current ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2018.

This measure will improve cash flow for small businesses, providing a boost to small business activity and investment for another year.

From 1 July 2018, the immediate deductibility threshold and the balance at which the pool can be immediately deducted will revert back to $1,000.

Reducing Pressure on Housing Affordability — limit plant and equipment depreciation deductions to outlays actually incurred by investors

Revenue ($m)

 

2016‑17

2017‑18

2018‑19

2019‑20

2020‑21

Australian Taxation Office

40.0

100.0

120.0


 

From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans.

This is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value. Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.

These changes will apply on a prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

Investors who purchase plant and equipment 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 plant and equipment purchased by a previous owner of that property.

This measure is estimated to have a gain to revenue of $260.0 million over the forward estimates period.