Individual investors with residential investment properties will no longer be able to deduct travel expenses, including travel costs associated with inspecting and maintaining properties, the government has confirmed.
The Turnbull government has released draft legislation for the housing affordability and tax integrity measures announced in the 2017/18 budget.
The Minister for Revenue and Financial Services, Kelly O’Dwyer MP, stated that the changes were being brought in following “concerns around the abuse of deductions for travel expenses that do not represent a legitimate commercial need”.
She said: “Travel deductions for individual investors with residential investment properties, including travel costs associated with inspecting and maintaining properties, will no longer be deductible.”
Despite only being announced today, the change applies from 1 July 2017.
However, Ms O’Dwyer emphasises that the change in law will not prevent investors from claiming a deduction for the expense of engaging third parties, such as real estate agents, to provide property management services for investment properties.
As well as the travel deductions, the government is limiting plant and equipment depreciation deductions for investors in residential investment properties to assets not previously used. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans.
Plant and equipment used or installed in residential investment properties as of 9 May 2017 (or acquired under 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.
The minister said: “The tax system currently creates opportunities for plant and equipment to be depreciated by multiple owners of a property in excess of its actual value. Significant abuse of the tax system has been witnessed in relation to property investors and advisers claiming excess deductions.
“This change will improve the integrity of the tax system by limiting plant and equipment depreciation deductions to outlays actually incurred by individual investors in residential real estate properties.”
She concluded that the two changes will “improve the integrity of the tax system by better targeting tax deductions for residential investment properties”.
The government has released exposure draft legislation and explanatory material for amendments to give effect to the budget announcements outlined above.
Public consultation on the exposure draft legislation and explanatory material will run for four weeks, closing on Thursday, 10 August 2017.