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Australia’s denial of depreciation deductions for second-hand assets used in residential rental properties: rationales appear obscure


From July 2017, decline in value deductions (depreciation) will not be available for second-hand assets deployed in residential rental properties and nor will such deployment followed by disposal of the asset be subject to the balancing adjustment aspect of the depreciating asset regime. Instead, the denied deductions and denied balancing adjustment amount may be recognised as a capital loss under the capital gains tax regime. Amongst other claims, official statements justifying the reform point to taxpayers refreshing the cost base of second-hand assets deployed to the rental property and successive owners of an asset claiming depreciation in excess of value. This article tests these rationales and others provided for the reform against the substantive income tax rules. The conclusion of the article is that the statements concerning refreshing cost bases, etc, cannot be correct as a matter of substantive income tax law; although they are very likely correct in terms of taxpayers illegally stepping-up cost bases.

Author profile

Dale Boccabella CTA
Dale has 18 years experience teaching a wide range of Australian taxation law courses at both undergraduate and postgraduate level including goods and services tax, fringe benefits tax, taxation of companies, tax administration and tax avoidance. Dale is currently teaching at the University of New South Wales and has also published over 70 articles on a wide range of areas of Australia’s taxation system. - Current at 29 May 2019
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