As of the first of July 2004, new owners of residential investment properties have been provided with clearer guidelines on the tax deductions they are entitled to.

The Australian Tax Office (ATO) has released a list of more than 150 depreciating assets, an increase on the previous list. It also reviewed the effective life of items defined in a building as ‘plant and equipment’.

The ruling has not necessarily increased the overall amount that can be claimed, but it has increased the clarity of claims across the board. Many areas were previously open to the individual interpretations of quantity surveyors. Those areas are now defined. It is all in black and white.

According to the ATO, more than 1.3 million taxpayers claimed rental property deductions in 2002-2003. More than 220,000 of them were new rental property owners.

But the changes are unlikely to stop here. The ATO has commenced the next effective life review on commercial properties. This could create some controversy. It is very unlikely that a residential investor will challenge this new ruling, the cost to benefit ratio is just not there.

However, if the same principles are applied to the commercial property sector, that is when the fun may begin. It would be far more beneficial – for instance – for Westfields to challenge that certain items such as ducting to air-conditioning and fire sprinklers still be classified as ‘plant and equipment’. They would have the funds to cover to contest the ruling.

Major Changes to Depreciation Reports
- Fire Sprinkler Systems no longer Plant and equipment – now included as part of building allowance.
- Light Fittings – Only plant if external to building structure.. such as oyster lights, and extruded light fittings. Down lights are now part of building.
- Lifts – now claimed at 3% per annum instead of 9%.
- Fire Hydrants, Boosters, Fire Hose Rels & Emergency Lighting ALL part of building.
- Ducting to Air-Conditioning now part of building. The rest of Air-Conditioning is still considered Plant and Equipment.
- Many items have had their effective life reduced. This is beneficial to the property investor. Eg. Blinds go from 20 years to 10 years, ovens from 20 years to 12 years,

In general the taller the building the more the new ruling will affect future depreciation claims.

Taller buildings have a greater proportion of Plant and Equipment in them as a percentage of construction costs and thus are more highly affected.

This new ruling only applies to Plant and Equipment acquired after the 1st of July 2004.

How to make this new ruling work for you:

- Use packaged Air-Conditioning as opposed to fully ducted.
- Use floating timber flooring
- Use extruded light fittings.

Whilst we do not agree with all the items categorised by the ATO, it will allow residential property investors to claim larger proportions over shorter periods of time on certain items.

This article has been provided by Washington Brown Associates Pty Ltd. If you would like more information regarding tax depreciation for your investment property please feel to contact their offices in Melbourne Brisbane or Sydney, or visit their website at www.washingtonbrown.com.au .