Depreciation rates cut will hit landlords' pockets

Landlords face a hit in the pocket from the government’s move to lower depreciation rates on buildings.

Monday, May 23rd 2005, 9:17AM

The reduction in building rates depreciation from 4% diminishing value to 3% was announced as part of the budget package, and applies to all property acquisitions purchased after budget day.

The changes will mean that on a $200,000 property the depreciation tax claim will fall from $8000 (at the 4% rate) to $6000, a 25% decrease. >p>The move could have cash implications for new investors and those highly geared and affect the structure, profitability, and cash flow of future rental housing investments.

Landlords are also likely to view the depreciation tax change as an attack on property investors.

However the decision will be partially offset by increases in depreciation levels on domestic appliances and items such as laptops, faxes and printers. The Budget also made no mention of chattels or the depreciation rate on fitout.

The changes were included in the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill, introduced on Budget day. An explanatory note said the changes to the tax depreciation rule were made “so that tax depreciation rates are closer to the way that depreciation rates are calculated and reduce the investment biases that favour investing in long-life assets over investments in short-life assets”.

Other key property-related items announced in the Budget were: • $134 million to buy an extra 1300 new state homes in the next four years, mainly aimed at reducing waiting times for areas of highest housing demand such as Auckland. • $22.6 million extra for the new Department of Building and Housing, mainly aimed at beefing up the Weathertight Homes Resolution Service, but also to give advice to rental market tenants and landlords. • Extra support for first-home buyers, including a home deposit subsidy of up to $5000 and easier access to mortgage repayments.

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