Clarity for rental property deductions

28 June 2004

Owners of residential rental properties will today get increased certainty about the tax deductions they can claim for depreciating assets.

Tax Office Commissioner Mr Michael Carmody said there is now a list of more than 150 depreciating assets, a substantial increase over the previous list. This list includes effective lives previously determined, and revised and new determinations.

The new effective lives will only apply to assets acquired from 1 July 2004.

"We have also reviewed the existing effective life determinations. The result of this review is that people will be able to claim their deductions for a majority of these items over a shorter period where they have been acquired from 1 July 2004," Mr Carmody said.

Tax Commissioner Carmody said this new list will provide clarity to property owners, particularly those new to the market, on the allowable deductions for depreciating assets.

More than 1.3 million taxpayers claimed rental property deductions in 2002-03. More than 220,000 of them were new rental property owners.

"This comprehensive list of depreciable items and their effective lives will reduce uncertainty, risks and overall costs for taxpayers," Mr Carmody said.

"It will help remove doubt that has led to items being misclassified and deductions being incorrectly claimed."

"And it will provide useful guidance for people lodging their income tax returns."

In addition, the release of a draft tax ruling today will help people work out whether items in their properties are depreciating assets or are eligible for capital works deductions.

Background
The practice of the Australian Tax Office making effective life determinations began in September 1999. Changes are announced every six months. The Tax Office has looked at depreciating assets normally found in residential properties and the period over which deductions can be claimed for those assets. This period is known as an asset's effective life.
The Tax Office has consulted with tax professional associations, the Australian Institute of Quantity Surveyors and the Property Council of Australia in preparing effective life changes and the draft ruling.
The ruling on the effective life of depreciating assets (TR 2000/18C7) and the draft ruling on plant in residential properties (TR 2004/D3), which is open for public comment until 4 August 2004, will be on the Tax Office website, http://law.ato.gov.au/atolaw/index.htm