The ATO has recently released a reminder to tax payers on the tax deductibility of depreciation on second hand assets purchased for rental properties.

Second-hand depreciating assets are depreciating assets that were already installed ready for use or used:

  • by another entity (except as trading stock)
  • in your private residence
  • for a non-taxable purpose, unless that use was occasional (for example, staying at the property for one evening while carrying out maintenance activities would be occasional use).

Examples of these second hand assets include but are not limited to:

  • Furniture, carpets, curtains, flooring, window coverings
  • Air conditioners, appliances, alarm systems, spas, pool pumps

Since 1 July 2017, depreciation on these second hand depreciating assets has not been tax deductible unless the rental property meets any of the following criteria:

  • The rental property is being used to carry on a business
  • Rental properties already rented out by you prior to 1 July 2017
  • Newly built rental properties
  • Substantially renovated rental properties (where all or most of a building is removed or replaced), and
  1. no-one else has claimed a deduction for the assets
  2.  no-one resided in the property before your clients acquired it, or
  3. your clients acquired the property within six months of the build or substantial renovation.

Please note these second-hand depreciating rules do not apply to:

  • Rental properties owned by companies
  • Rental properties owned by a superannuation plan that is not a self-managed super fund
  • Rental properties owned by a public unit trust
  • Rental properties owned by a managed investment trust
  • Rental properties owned by a unit trust or a partnership, where all of the members are entities of a type listed above.

If you are unsure whether depreciation on assets you have purchased or are looking to purchase will be tax deductible for your rental property, please give our team a call so we can assist.