The federal budget and Victorian state government have made significant changes to depreciation, travel expenses and stamp duty concession. Investors have until 1 July 2017 to save up to $20,000 or more on stamp duty. Here’s what investors need to know.
Depreciation: rewards investors with new properties
Let’s start with what was announced in the budget about depreciation.
Labor has been vocal about what they would do to negative gearing if they get into power. They propose that negative gearing will only apply to new properties.
The main reason behind this stems from one of the goals behind why these tax benefits have been originally introduced: to encourage Australian investors to build more properties, help alleviate a housing shortage and ideally stimulate the economy through the construction industry.
Has this happened? No. Labor quotes that 90 per cent of investors are enjoying the benefits of negative gearing with established properties.
Liberals do not want to change this area of legislation yet they seem to have come up with some common ground to appease the masses who are in support of a change: if you purchase an established property, you cannot claim depreciation for removable items, such as appliances or floor and window coverings.
These items can only be depreciated if you purchase new:
- For a newly built home
- If purchased individually to add or replace in an existing property
I think it has some merit.
These changes are rewarding those who are buying new (same goal as Labor) without potentially disrupting the whole industry.
Travel expense: no longer tax deductible
The expense of visiting your investment property is no longer tax deductible, a relatively minor change in the budget. Unfortunately, like a lot of things, this change has been introduced through some people abusing the system and making false or excessive claims.
I think travel to an investment property is a warranted business expense for property investors who are genuinely taking an active role in looking after their investment.
Stamp duty concession in Victoria
So now let’s look at what the Victorian state government has done.
Victoria has been the only state to offer a concession on stamp duty for off-the-plan purchases. Stamp duty is calculated on the improved value of the land at the time of signing the contract of sale.
If you’ve purchased a townhouse for $400,000 and construction is yet to begin, stamp duty is calculated on the land value only. This may only be a couple of thousand dollars (depending on the value of the land).
One of the main reasons for this concession is to encourage and incentivise private investors to purchase in the early stages of a development so that developers can get pre-sales and begin construction.
Once again, this concession is set up for similar reasons to negative gearing: to build more properties, help alleviate a housing shortage and stimulate the economy through the construction industry.
Quite frankly, a smart state initiative.
Changes to the stamp duty concession
As of 1 July 2017, the concession will no longer be available to investors. As usual, through short-sightedness, the state government is looking for a cash grab and not looking at what this may do to the industry and the housing market.
So to put things in context, that same $400,000 townhouse will incur a stamp duty fee of almost $20,000.
Investors are no longer rewarded for taking the larger risk of buying early off-the-plan.
One of the hottest topics at the moment is housing affordability.
Surely the government can see with basic supply and demand that the less properties we have in the market, the greater the demand. What does that then do to prices?
Changes to the federal budget and the Victorian state government means:
1. You can’t claim depreciation for removable items in established properties
2. You can’t claim travel expenses to visit your investment property
3. BUT you can get the stamp duty concession – only up to 1 July 2017
So, if you’ve been thinking about purchasing an off-plan apartment or townhouse in Victoria, stop thinking and get onto it now!
Nick Holden is the Founder of Simple Property Investment, and a qualified, insured Property Investment Advisor who has more than 20 years of investing experience; for himself and his clients. As there is no 'one size fits all' with property investment, he is on a mission to help ordinary Australians create wealth for their futures with personalised strategies and advice. And their best interests at heart.
Nick is an accredited advisor with the ASPIRE Advisor Network, an industry organisation founded out of a desire to provide a genuinely independent, compliant and professional service. ASPIRE is setting the benchmark in the property advice sector.