Negative gearing allows for investors who have made a loss on an investment to claim that loss against their personal income.
Capital allowances and depreciation are legitimate tax deductions claimable by investors to account for the ageing and wear and tear of their investment property over time (the loss in value of the building and assets as they age is claimable each year as a tax deduction).
For a property that is positively geared, claiming for depreciation helps to reduce the profit made on the investment in a year, and to pay less tax. Any change to negative gearing law will not change the ability of these investors to claim for depreciation and to reduce their tax liability.
For property that is negatively geared, claiming for depreciation increases the loss made by the investment, which is then claimed as a deduction against personal income and further decreases the investors tax liability.
So how could the different changes around negative gearing proposed by each major party affect the value of obtaining a depreciation report for an investment property?
Labor have committed to grandfathering the negative gearing rules for existing arrangements. As the ability to claim for losses on older properties in the future may be abolished, depreciation schedules that maximise deductions on those properties are now more valuable than ever. Even if the discount on Capital Gains Tax were reduced, the opportunity cost, as well as the decreasing purchasing power of the dollar over time still means that the benefits of claiming depreciation up front outweigh the impact those deductions may have on future CGT calculations if the property is sold.
Liberals appear to be backing further away from changes to negative gearing rules every day. As Malcolm Turnbull expressed, ” Negative gearing is income tax 101. It’s not a tax concession at all. It is a fundamental principle of tax law and has been forever…”. As we understand it, Liberals have considered capping the value of investment losses that can be claimed against personal income. If that were to be the case, unless your investor clients are likely to exceed that cap (rumoured previously at $20,000 and then $50,000 of losses), then a depreciation report is just as valuable to your client as ever before. It may also be worth mentioning that historically, legislation is rarely backdated and so existing rules are likely to continue to apply for existing properties. As losses may be capped on future properties, maximising the deductions available on existing properties becomes even more important.
In short, nobody can really know what the final outcome of the potential changes in negative gearing rules will be. One thing that hasn’t changed and is not likely to change for the majority of property investors is that a depreciation report, produced specifically to ensure investors are accurately claiming for the depreciation of their investment asset, is just as valuable and possibly more valuable this year than ever before.
Our message to investors is: ensure you are maximising the return on your investment and claiming the most deductions to which you are still legally entitled. If the uncertainty of the future around negative gearing still leaves you wondering if a depreciation report will be valuable for your circumstances, just ensure the deductions reported for the 2016 financial year will be enough to offset the cost of the report. A Capital Claims Tax Depreciation Report offers just that – deductions of at least 2X our fee for FY 2016 or no charge – zero risk for guaranteed returns. For more information please email us on email@example.com or call us on 1300 922 220.
Negative gearing, depreciation, depreciation schedules.
If you own an investment property, the best way to ensure your depreciation deductions have been maximised is to use a depreciation schedule prepared by Capital Claims Tax Depreciation. For an estimate of deductions you may be entitled to, or to have your current depreciation schedule reviewed free of charge, please don’t hesitate to get in touch.