Whilst the depreciation laws in this country are quite complex, as a whole, I believe they are balanced and offer property investors realistic benefits.
But there is always room for improvement.
As mentioned in my previous posts, I disagree with the rates at which certain items can be claimed, along with their effective life.
For instance, I would rather property investors claim 4% building allowance over a 25-year life span than the current 2.5% over 40 years.
In fact, I made that exact submission to the government as part of their Business Tax Working Group in 2013.
At the time, the government was considering scrapping the building allowance all together.
My recommendation was that only construction or contracts signed after the proposed date would be subject to a 4% building allowance regime, based upon the original construction cost.
I also proposed that the original construction date at which the depreciation of building allowance kicks in could be pushed forward from the current 1985 to 1990 to help save the government
As the following table shows, by immediately making all purchases and contracts entered into for construction subject to a flat 4% building allowance, significant savings will be made and incentives to buy new property will increase.
Table 13.1: Current building depreciation regime
*First year deduction based on $250,000 = $6,250 (new property only)
Table 13.2: Proposed building depreciation regime
*First year deduction based on $250,000 = $10,000 (new property only)
The flow-on effects of increased construction to the wider community could be huge
According to the Australia Bureau of Statistics (ABS) for every $1 million spent on construction output, a possible $2.9 million would be generated in the economy as a whole, giving rise to nine jobs in the construction industry (the initial employment effect) and 37 jobs in the economy as a whole from all the flow-on effects.
The government decided to uphold the status quo on depreciation laws instead of scrapping or significantly reducing the allowances.
It recognised that this would have a significant impact on investment incentives.
SUBSCRIBE & DON'T MISS A SINGLE EPISODE OF MICHAEL YARDNEY'S PODCAST
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
NEED HELP LISTENING TO MICHAEL YARDNEY'S PODCAST FROM YOUR PHONE OR TABLET?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
PREFER TO SUBSCRIBE VIA EMAIL?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.