Plenty of lucrative deductions available for investors

Clarke McEwan Accountants

N ew legislation, N ew opportunities for investors

Changes announced as part of the 9th of May 2017 federal budget have now been legislated after being passed by the Senate on the 15th of November 2017.

For many property investors the new rules, outlined in Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 , have made what was already a complex topic a little more difficult to understand.

The new rules do not affect capital works deductions at all. The amended legislation only restricts property investors from claiming depreciation deductions for the decline in value of 'previously used' depreciating assets (plant and equipment) within second-hand residential investment properties.

An incorrect assumption some property investors have made after hearing about the changes is that they are no longer eligible to make a claim.

*** I t's important to note that the new legislation only applies to investors who exchange contracts on a second-hand residential property after 7:30 pm on the 9th of May 2017. Even in cases where investors are affected by the change, there are still thousands of dollars to be claimed, particularly as capital works deductions typically make up between 85 to 90 % of the total claim. The new legislation provides opportunities for investors in the following scenarios as it does not impact them:

• Investors who purchase a brand-new residential property

• Investors who exchanged contracts on a residential property prior to 7:30pm on the 9th of May 2017

• Investors who add new plant and equipment assets to their property after purchase and directly incur the expense

• Investors who purchase properties which are considered to have been substantially renovated by the previous owner

• Non-residential and commercial properties

• Any deductions that arise in the course of carrying on a business

• Any residential property held in a superannuation plan (other than Self-Managed Super Funds)

• Investors who hold residential property in corporate tax entities, including company entities

• Home owners who turned their primary place of residence into a rental property prior to the 1st of July 2017 ***

F or affected investors, it's important to note that the changes only impact the existing plant and equipment depreciation deductions found within a second-hand residential property. These are the easily removable fixtures and fittings such as carpets, hot water systems and air conditioners. Any brand-new plant and equipment assets added to the property after purchase are depreciable.

The capital works allowance, which is the component investors can deduct for the building structure, is unchanged. Examples include walls, the roof, doors, kitchen cupboards and more. These deductions can be claimed at a rate of 2.5 per cent per year for a maximum of forty years for any property in which construction commenced after the 15th of September 1987.

Often older properties have been renovated and qualifying capital works completed by a previous owner can be claimed by the new owner for any years that remain in the forty year period.

The table below provides an example of common capital works items which the owner of a second-hand residential investment property could claim.

Capital worksdeductions
Item	Capital works rate	Remaining effective life (years)	Firstfull financialyear deduction	Fiveyear cumulative deductions
Origina l structu r e an d fixe d items	2.50%	25	$6,250	$31,250
Kitchencupboa r ds ( r eplace d5 year s ago)	2.50%	35	$289	$1,445
Kitchenbenchtop ( r eplace d5 year s ago)	2.50%	35	$72	$360
Outdoorpe r gola (installed7 yearsago)	2.50%	33	$240	$1,200
Plumbing(updated 5 yearsago)	2.50%	35	$68	$340
Tiling(updated 5 yearsago)	2.50%	35	$130	$650
T otal			$7,049	$35,245

I n thi s scenari o th e investo r exchanged contract s o na fiftee n yea r old , four bed r oom , tw o bath r oo m hous e after 7:30p m o n th e 9t h o f Ma y 2017.

The p r eviou s owne r o f th e p r opert y had complete d r enovation s whic h included updatin g th e kitche n th r oug h installing ne w cupboa r d s an d benchtop s fiv e years ag o an d addin g a n outdoo r pe r gol a seven year s ago.

Astheexample shows,theinvestor wouldbeeligible toclaim$7,049 in capitalworksdeductionsin thefirstfull financial yea r ,or$35,245 in cumulative deductionsoverfiveyears.

Th e investo r woul d als o b e eligibl e t o claim dep r eciatio n fo r an y brand-ne w plan t and equipmen t asset s the y chos e t o pu r chase an d ad d t o th e p r opert y themselves.

Anyplantandequipmentassetsthatwe r e installed bythep r eviousownercanbe excludedf r omthedep r eciationschedule andincludedin acapitallossschedule. Thisschedule canbeused bytheowner tooffsetanyCapitalGains T axliabilities shouldthey choosetodisposeofany assetsorsellthep r opertyin futu r e.

The r ea r estillsubstantialdeductions availableforanyinvestors affectedby thenew legislation. It ' salwaysworthwhile consultingwithaQuantity Surveyorto discusswhatdeductionscanbeclaimed.

If you are venturing into the investment property mine-field, be sure to consult our practice for further advice.

< Older Post

Newer Post >

Keeping your tax and expenses in check when you are self-employed

By Clarke McEwan • September 16, 2025

Working for yourself or running your own business? Setup robust systems for expenses & tax requirements so you can focus on your important tasks. We can help take the headaches out of your business accounting. #freelancelife #taxtalk #smallbusinesstips #contractors #medicalcontractor #businesscontractors #ABN

A win for those carrying student debt

By Clarke McEwan • September 9, 2025

20% reduction in student debt The reduction is expected to benefit more than 3 million Australians and remove over $16 billion in outstanding debt. The 20% reduction will be automatically applied to anyone with the following student loans: · HELP loans (eg, HECS-HELP, FEE-HELP, STARTUP-HELP, SA-HELP, OS-HELP) · VET Student loans · Australian Apprenticeship Support Loans · Student Start-up Loans · Student Financial Supplement Scheme. The reduction will be based on the loan balance at 1 June 2025, before indexation was applied. Indexation will only apply to the reduced balance. The ATO will apply the reduction automatically on a retrospective basis and will adjust the indexation that is applied. No action is needed from those with a student loan balance and the Government has indicated that you will be notified once the reduction has been applied. If you had a HELP debt showing on your ATO account on 1 April 2025 but you paid the debt off after 1 June 2025 then the reduction will normally trigger a credit to your HELP account. If you don’t have any other outstanding tax or other debts to the Commonwealth, then the credit should be refunded to you. The HELP debt estimator is a useful tool to get an idea of the reduction amount, please reach out if you need any help in working out eligibility. Changes to repayments The Government has also modified the way that HELP and student loan repayments operate, primarily by increasing the amount that individuals can earn before they need to make repayments. The minimum repayment threshold for the 2025-26 year is being increased from $56,156 to $67,000. The threshold was $54,435 for the 2024-25 year. Under the new repayment system an individual will only need to make a compulsory repayment for the 2025-26 year if their income is above $67,000. The repayments will be calculated only against the portion of income that is above $67,000. Repayments will still be made through the tax system and will typically be determined when tax returns are lodged with the ATO. For many people the change in the rules will mean they have more disposable income in the short term, but it will take longer to pay off student loans. The main exception to this will be when an individual chooses to make voluntary repayments.

Creating a more dynamic and resilient economy

By Clarke McEwan • September 9, 2025

The Productivity Commission (PC) has been tasked by the Australian Government to conduct an inquiry into creating a more dynamic and resilient economy. The PC was asked to identify priority reforms and develop actionable recommendations. The PC has now released its interim report which presents some draft recommendations that are focused on two key areas: · Corporate tax reform to spur business investment · Where efficiencies could be made in the regulatory space (ie, cutting down on red tape) The interim report makes some interesting observations and key features of the draft recommendations are summarised below. Corporate tax reform The PC notes that business investment has fallen notably over the past decade and that the corporate tax system has a significant part to play in addressing this. The PC is basically suggesting that the existing corporate tax system needs to be updated to move towards a more efficient mix of taxes. The first stage of this process would involve two linked components: · Lower tax rate: businesses earning under $1 billion could have their tax rate reduced to 20%, with larger businesses still subject to a 30% rate. · New cashflow tax: a net cashflow tax of 5% should be applied to company profits. Under this system, companies would be able to fully deduct capital expenditure in the year it is incurred, encouraging investment and helping to produce a more dynamic and resilient economy. However, the new tax is expected to create an increased tax burden for companies earning over $1 billion. Cutting down on red tape The interim report notes that businesses have reported spending more time on regulatory compliance – this probably doesn’t come as a surprise to most business owners who have been forced to deal with multiple layers of government regulation. Some real world examples include windfarm approvals taking up to nine years in NSW while starting a café in Brisbane could involve up to 31 separate regulatory steps. The proposed fixes include: · The Australian Government adopting a whole-of-government statement committing to new principles and processes to drive regulation that supports economic dynamism. · Regulation should be scrutinised to ensure that its impact on growth and dynamism is more fully considered. · Public servants should be subject to enhanced expectations, making them accountable for delivering growth, competition and innovation. These are simply draft recommendations contained in an interim report so we are a long way from any of these recommendations being implemented. However, the interim report provides some insight into areas where the Government might look to make some changes to boost productivity in Australia. The PC is inviting feedback up until 15 September on the interim report before finalising its recommendations later this year.

Non-compete clauses: the next stage

By Clarke McEwan • September 9, 2025

Back in March this year the Government announced its intention to ban non-compete clauses for low and middle-income employees and consult on the use of non-compete clauses for those on higher incomes. The Government has indicated that the reforms in this area will take effect from 2027. This didn’t come as a complete surprise as the Competition Review had already published an issues paper on the topic and the PC had also issued a report indicating that limiting the use of unreasonable restraint of trade clauses would have a material impact on wages for workers. Treasury has since issued a consultation paper, seeking feedback in the following key areas: · How the proposed ban on non-compete clauses should be implemented; · Whether additional reforms are required to the use of post-employment restraints, including for high-income employees; · Whether changes are needed to clarify how restrictions on concurrent employment should apply to part-time or casual employees; and · Details necessary to implement the proposed ban on no-poach and wage-fixing agreements in the Competition and Consumer Act. Treasury makes it clear that the Government is not planning to change the way the rules apply to restraints of trade outside employment arrangements (eg, on sale of a business) or change the use of confidentiality clauses in employment. If the proposed reforms end up being implemented, then this could have a direct impact on a range of employers and their workers. Existing agreements will need to be reviewed and potentially updated. However, it is too early at the moment to guess how this will end up, we will keep you up to date as further information becomes available.

Superannuation guarantee: due dates and considerations for employees and employers

By Clarke McEwan • September 9, 2025

On 1 July 2025 the superannuation guarantee rate increased to 12% which is the final stage of a series of previously legislated increases. Employers currently need to make superannuation guarantee (SG) contributions for their employees by 28 days after the end of each quarter (28 October, 28 January, 28 April and 28 July). There is an extra day’s allowance when these dates fall on a public holiday. To comply with these rules the contribution must be in the employee’s superannuation fund on or before this date, unless the employer is using the ATO small business superannuation clearing house (SBSCH). The ATO has been applying considerable compliance resources in this space in recent years which can have an impact on both employees and employers. Employers To be eligible to claim a tax deduction on SG contributions the quarterly amount must be in the employee’s super account on or before the above quarterly due dates. The only exception to this is where the employer is using the ATO SBSCH. In that case a contribution is considered made provided it has been received by the SBSCH on or before the due date. Employers using commercial clearing houses should be mindful of turnaround times. Commercial clearing houses collect and distribute employee contributions and may be linked to accounting / payroll software or provided by some superannuation platforms. Anecdotally it seems that turnaround times for some clearing houses could be up to 14 days, so it is recommended that employers allow sufficient time before the quarterly deadlines when processing their employee SG contributions. If these deadlines are missed (yes even by a day!) that will trigger a superannuation guarantee charge (SGC) requirement which will result in a loss of the tax deduction and other penalties. The SGC requirements are outlined in the ATO link below: The super guarantee charge | Australian Taxation Office Employers do have the option to make SG payments more frequently than quarterly and this is something that employers will need to become used to if the proposed ‘payday’ superannuation reforms become law. This change is proposed to commence from 1 July 2026 and would require SG to be paid at the same frequency as salary or wages. There is some discussion on the payday super proposal at this link (noting that this is not yet law). The SBSCH will close at this time so employers using this service should start to consider transitioning to a commercial clearing house, please let us know you would like assistance with this. Employees It is recommended that you regularly check your superannuation fund statements and reconcile employer contributions to the amounts listed on your pay slips. Where SG contributions are not received on time (or at all!) employees are encouraged to discuss this first with their employer. Should this not result in a satisfactory conclusion, employees can consider bringing this to the attention of the ATO. There is some helpful discussion on this process at the following link .

RBA cuts rates to 3.60%: what this means for you

By Clarke McEwan • September 9, 2025

In a widely anticipated move on 12 August 2025, the Reserve Bank of Australia (RBA) delivered a 25 basis point rate cut, lowering the cash rate from 3.85% to 3.60%, the third reduction this year. This rate is now at its lowest level since March 2023 signaling renewed monetary easing amid persistent economic fragility. Governor Bullock emphasised that the decision was unanimous and that larger cuts weren’t considered. She did however leave the door open for further action if conditions warrant it. The unanimous decision was made because: · Headline inflation has eased to 2.1% year on year and the RBA’s preferred trimmed mean measure sits at just 2.4–2.7%, comfortably within the desired 2–3% range. So, it’s now within target. · There’s still soft economic growth, quarter 1 saw GDP grow 0.2% and unemployment has gone up slightly to roughly 4.3%. This is a welcome move for many with flow-on impacts across a wide section of the community. Borrowing and mortgages: a borrower with a $600,000 mortgage can expect monthly repayments to fall by around $89, saving over $1,000 annually. Refinancing: the latest cut has triggered a wave of refinancing, Canstar estimates monthly savings of around $272 on a $600,000 loan, potentially taking years off the loan term and saving tens of thousands in interest expenses. Housing and lending: the cut may revive home buying sentiment, though the risks of swelling property prices remain. Borrowers and buyers alike are feeling the relief. Currency and markets: the Australian dollar did weaken moderately following the decision. On the ASX 200, financial stocks, particularly the Commonwealth Bank, took a hit as investors fretted over shrinking interest margins. While there are always winners and losers with a decision like this, for many Australians this is a positive change. Either way, please do reach out if we can help you understand how to best manage your debt, exploring refinance options, adjust pricing models or evaluating investment readiness.