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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1051476557004

Date of advice: 6 February 2019

Ruling

Subject: Trading stock and depreciating assets.

Question

Are assets purchased from a developer which are to be used in a residential rental property considered trading stock and therefore able to be depreciated under Division 40 of the Income Tax Assessment Act 1997?

Answer

No

This ruling applies for the following period:

Year ending 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

In mid 201x you purchased a residential rental property from a property developer. The developer in turn proceeded to lease the property back from you as a display home for X years. When the lease finished you purchased the furniture, fixtures and fittings used in the display from the developer.

You are not carrying on a rental property business.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 70-10

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 40-27

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

From 1 July 2017, there are new rules for deductions for decline in value of certain second-hand depreciating assets in your residential rental property.

If you use these assets to produce rental income from your residential rental property, you cannot claim a deduction for their decline in value unless you are using the property in carrying on a business (including a rental property business), or you are an excluded entity.

Assets are resources or things of value that are owned by a company. Some examples of assets which are obvious and will be reported on a company's balance sheet include cash, accounts receivable, inventory, investments and equipment. A company’s assets are usually items which have a limited effective life and can be depreciated over the time it is used. These types of assets generally include items such as computers, electric tools, furniture and motor vehicles.

You can only claim deductions for second-hand or used depreciating assets in residential rental properties if both of the following apply:

The purchased items are second-hand assets and do not meet the conditions above.

Trading stock includes anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of a business.

Summary

In your case the developer trades in property, and the furniture forms part of their capital assets.

The furniture and other assets you purchased from the developer after 1 July 2017 is considered second hand assets and therefore are not able to be depreciated.

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