Government clampdown on deductibility of investment property outgoings will distort market: REIA

Government clampdown on deductibility of investment property outgoings will distort market: REIA
Government clampdown on deductibility of investment property outgoings will distort market: REIA

Real estate’s leading industry body says the federal government should reconsider its Budget announcement of allowable deductions for investment property related to depreciation and travel to inspect property.

Real Estate Institute of Australia’s president Malcolm Gunning said while REIA supports the government’s initiatives to curb misuse of these deductions by landlords, these two initiatives are “contrary to the principles of a good tax system” and would do little to improve housing affordability. 

He says the decision will distort the market by making properties that are not new less desirable.

The ATO has existing means for addressing abuses and excesses, he added.

“One of these principles is neutrality which in essence means that two tax payers in similar circumstances should be treated the same,” Gunning said in a media release. 

“These initiatives are contrary to this principle with the budget initiative of not allowing for travel to inspect residential investment property meaning that an investor who owns a commercial investment property can claim deductions for their annual site inspection travel costs but an investor who owns a residential property cannot.”

He said the ATO says on its website there are many valid reasons why an owner of investment property would incur costs travelling to a residential rental property.

“Whilst abuses and excesses should be eliminated there are other ways of achieving this through the ATO. The ATO has a myriad of information available to identify questionable claims.  Conversely it will adversely impact those tax payers who are not abusing the system.

“Ironically, these changes will do nothing to improve affordability in Sydney and Melbourne and indeed it may make it worse as investors in these two cities are discouraged from investing in locations other than their home towns.

He said anecdotal evidence suggests that as Sydney and Melbourne prices have increased investors are turning to non-metropolitan locations, which brings jobs along with them. This measure will put a brake on this trend.

“Regarding the proposal to restrict depreciation claims to items purchased and installed in the property by the claiming taxpayer, REIA believes, like travel, it doesn’t treat the investor buying a property that is 12 months old the same as one buying a new property,” Gunning said.

The ATO has monitored this area and has the ability to identify abuses and excesses and deal with them, according to Gunning. 

"These changes appear to be more about politics than good policy," Gunning said.

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