Various Scenarios As A Residential Operator Affected by ATO Second-Hand Depreciating Assets Ruling on Residential Properties
Brand New Property
If you purchased a brand-new property as an income-producing property, this ruling doesn’t apply to you unless you start living in it post the effective date of this ruling and rent it out subsequently again.
Inheritance Property
In the case of inherited property from the passing of a deceased family member, if the property has already been income producing prior to the ruling effective date of 1 July 2017, it will count as a grandfathered property upon transfer of estate and continues to have full depreciation deductions without being affected by this ruling.
The property would only be affected if it wasn’t rented out prior to the ruling effective date.
Developer’s trading stock property
Basically, this is the situation where a developer didn’t manage to sell off their property immediately upon construction completion. The developer will have a 6 months grace period in which they can lease out the property before selling the property as a brand new one with full depreciation deductions.
However, as a trading stock property, the developer would not be eligible to claim tax depreciation while renting it out.
Additional Note:
What happens if an unaffected property (eg: brand new or purchased property prior to the ruling date) had experienced a conversion of ownership from joint to sole or vice versa?
It is regrettable to say that both scenarios involve the process of exchanging contracts therefore the second-hand depreciating ruling applies. In both cases, the ruling would only affect half of the ownership. This would mean claiming only half of the tax depreciation on your property’s division 40 assets.
In this context, it would be a contentious issue as the ruling seems to be applied ineffectively on a ‘paper transfer’ of ownership which inevitably penalized the owner/s.
***Noting the above scenarios are illustrated based on an affected entity such as an individual, SMSF, or family trust. Exempted entities have been covered in our previous article.***
