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Depreciating Assets: What can be claimed for rental property? |
This is an issue close to the hearts - or at least the pockets - of many taxpayers, particularly given the large number of investors who own rental properties which are negatively geared. |
The Tax Office has issued a new ruling on what constitutes 'depreciable plant' in residential rental property. It is doing this to delineate what is not plant, as it seeks to reduce the amount of deductions claimed by property investors. |
As a guide, there is a presumption that the premises and any associated fixtures and fittings are not plant - for instance, kitchen cupboards, insulation batts and built-in wardrobes are not plant, and therefore not depreciable. |
The Tax Office carries out a number of tests: the setting, function, and completeness tests. Something which is merely the setting in which the taxpayer's income- producing activities are carried on is not plant. |
Where an item is more than mere setting, it must satisfy the function test to qualify as plant. The function performed by the item must be so closely related to the taxpayer's income-earning activities, or so special, that it warrants being regarded as plant. |
Also, whether a building would be complete without a particular item aids in the determination of whether an item is plant, but this is not a conclusive test. |
Machinery is plant, even if it forms part of the setting - for example, air-conditioning equipment, dishwashers, stoves, range hoods and burglar alarms. Ducting and piping do not qualify, unless they are truly part of a machine, and not merely joined to it. |
julia.scully@cmlawyers.com.au
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