Edited version of your written advice

Authorisation Number: 1051374669485

Date of advice: 21 May 2018

Ruling

Subject: Am I in the business of letting rental properties? – travelling expenses

Question 1

Are you carrying on a business of letting rental properties?

Answer

No.

Question 2

Are you entitled to claim travel expenses in relation to your rental properties under sections 8-1 and 26-31 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No. As it is viewed that you are not carrying on a business of letting your rental properties you cannot claim deductions for your travel expenses incurred in relation to those properties.

Question 3

Are you entitled to claim depreciation on second-hand plant and equipment purchased to be used in your rental properties that was acquired prior to 7.30 pm on XX/XX/201X under Division 40 of the ITAA 1997?

Answer

Yes. You can claim depreciation for plant and equipment acquired with the properties purchased prior to 7.30 pm on XX/XX/201X and any second-hand plant and equipment purchased in relation to those properties prior to that date.

Question 4

Are you entitled to claim depreciation on second-hand plant and equipment purchased to be used in your rental properties that was acquired after 7.30 pm on XX/XX/201X under Division 40 of the ITAA 1997?

Answer

No. You cannot claim deprecation on second-hand plant and equipment acquired with any property purchased after 7.30 pm on XX/XX/201X, or any second-hand plant and equipment purchased in relation to those properties after that date.

Question 5

Are you eligible to claim depreciation on new plant and equipment purchased to be used in your rental properties that was acquired after 7.30 pm on XX/XX/201X under Division 40 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period

Income year ending 30 June 201X.

The scheme commences on

1 July 201X.

Relevant facts and circumstances

You are the sole owner of XX properties:

● which are managed by you;

● which were purchased over a period of around 20 years;

● that have the market value of around $X,XXX,XXX;

● you paid around $X,XXX,XXX to acquire the properties;

● that were purchased for a number of reasons, such as their rental returns were in line with the mortgage repayments for that particular property, were positively geared, were attractively priced, were good value for the asking price, they were returning similar rental amounts to other properties you owned, would return higher rental than a unit, were in excellent condition, had been totally renovated, were ready to rent out, had a sitting tenant or the property could be subdivided.

You pay the rates, water utilities, insurance, strata levies, emergency service levies and land tax in relation to the properties.

Your properties are leased as long term rentals on periodic lease contracts for as long as the tenants want to lease the property, with the flexibility of X weeks’ notice for either the tenant or you to terminate the lease. The periodic leases do not have to be renewed as the end date is open and you make enquiries about the length of time potential tenants are seeking to lease the property for as you are not looking for short-term tenants.

Leases vary from a minimum of X year, and in some cases several years, and you estimate that the lease periods average is X years.

You spend around X hours per week on average in relation to the rental properties and estimate that on average you visit each property X times per year. You undertake the following activities as they arise in relation to the properties, which vary from day to day:

● collecting the rent from tenants. Normally, this is paid into your bank account by electronic transfer, or deposited directly into your bank account;

● advertising vacant properties for rent on the gumtree website;

● preparing, drawing up and negotiating lease agreements;

● downloading, photocopying and scanning documentation relevant to tenancies;

● meeting/interviewing potential tenants and showing vacant properties to them;

● vetting/checking potential tenant’s references;

● you are the advertised point of contact for the lessees when they require assistance, and are available at all times;

● completing minor repairs, such as leaking taps and replacing fly screens. You inspect all reports of repairs and maintenance requests and in most cases undertake the repairs yourself;

● undertaking property inspections, organising inspection times on a quarterly basis. You suggest dates and times which you adapt to suit the tenants. Each inspection generally takes around fifteen minutes;

● reconciling weekly rent and pursuing late payments as required;

● ringing residential tenancies for advice as required;

● attending to tenants complaints;

● making applications to and attending hearings when tenants have fallen far enough behind in paying their rental;

● keeping all documentation associated with the tenancies in separate files; and

● keeping records for each property in separate files which includes information in relation to the income and expenses for each income year, purchasing and banking correspondence; and

● spending around two days tidying up properties after the tenant has moved out in preparation for the next tenant, including cleaning and repairs as required.

You spend around X hours per week completing general maintenance at a number of locations where you have properties for which you charge the Strata Corporation on a monthly basis for your services. The general maintenance includes putting out rubbish bins on a weekly basis, gardening activities such as mowing, weed spraying, pruning, and hard rubbish disposal. The time spent on these properties is additional to the time you personally spend on your properties.

You only have one bank account as you find it convenient to only keep the one account for all of your transactions. Tenants are given a reference code to identify their payments. Your mortgage payments are drawn from this bank account and you pay most of your bills, such as council and water rates, emergency service levies and land tax with funds from the account.

You collect the first X weeks rental in cash, and occasionally tenants pay the rental amounts to you in cash. Otherwise, the rental amounts are paid directly into your bank account by electronic transfer, or deposited directly into your bank account.

You look at similar properties for rent on realestate.com in relation to rental income and set your rental amounts accordingly.

You increase the rents on average every X years during a tenancy, and reassess the market rate on vacancy. You also take major renovations into account, such as retiled bathrooms and installation of new kitchens.

You usually select a tenant within X weeks, but will wait as long as it takes if no suitable applicants apply to your advertisements.

You do not charge the tenants for anything other than for rent.

Most repairs are ad hoc with major renovations, such as painting, updating kitchens, installing built-in wardrobes and laying floating floors being undertaken between tenancies. All electrical work is undertaken by licenced electricians. The services of plumbers are engaged as required, with you attending to some minor plumbing issues, such as leaking taps, toilet cistern flushing mechanism replacements. Professional tilers are engaged when upgrading bathrooms.

You have completed renovations on a number of your properties which usually takes between X to X weeks to complete, but in one instance has taken over X months.

You retired from full time employment X years ago and currently receive rental income, personal services income, share dividends and a superannuation pension.

You have been steadily increasing your shareholding since 2XXX and had borrowed against the increased equity of some of your properties, using the borrowed funds to purchase shares, from which you received dividends. Over the past few years you sold most of your shares to purchase X properties.

Your business plan is to maintain the status quo as you have time, energy and experience to do so. You regularly monitor your income and expenditure and endeavour to minimise your expenditure by undertaking as many activities as you can.

You have not disposed of any of your properties and do not have any plans to sell any of the properties in the near future.

You do not intend increasing your rental property portfolio at this point in time.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 26-31

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1997 Division 40

Reasons for decision

Question 1

Carrying on a business

Section 995-1 of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'.

Paragraph 8 of Taxation Ruling TR 2003/4 (TR 2003/4) (which is about whether boat charter activities generate business or investment income) states:

The receipt of income from the lease of an asset does not of itself amount to the carrying on of a business (see FC of T v. McDonald 87 ATC 4541; (1987) 18 ATR 957), but instead would generally be the passive receipt of income from property.

Paragraph 51 of TR 2003/4 states:

Beaumont J indicated (quoting Wertman v. Minister of National Revenue 64 DTC 5158) that for a business to be carried on by owners of property, one would expect that they would be involved in providing services in addition to the process of letting property (as with a boarding house), not merely receiving payments for the tenants' occupation of the property.

These statements indicate that a person who simply owns an investment property or several investment properties, either alone or with other co-owners is usually regarded as an investor who is not carrying on a rental property business. There has to be something special about the activity to reach the conclusion that a business is being carried on. This will generally relate to the provision of additional services to the client in a manner that enhances the gross return above investment levels.

Normally the receipt of income from the letting of property to tenants does not amount to the carrying on of a business (Federal Commissioner of Taxation v. McDonald (1987) 15 FCR 172; 87 ATC 4541; 18 ATR 957 (McDonald’s case); Cripps v. FC of T 99 ATC 2428; (1999) 43 ATR 1202 (Cripps’ case); Case X48 90 ATC 384; (1990) 21 ATR 3389).

The issue of whether individuals are carrying on a business of letting property has been considered in a number of cases, some of which are discussed below.

In Cripps v. FC of T 99 ATC 2428; (1999) 43 ATR 1202 (Cripps case), the taxpayer and his wife purchased, as joint tenants, 14 townhouses which they rented out. They also purchased a property which was used initially as a holiday home but was later periodically rented out. A further property was purchased for residential purposes. After a failed attempt to sell it, it was also rented out. The Administrative Appeals Tribunal found that the taxpayer and his wife were mere passive investors and were not in the business of deriving income from rental properties. They rejected the taxpayer's argument that he had greater involvement with his 16 properties. The Tribunal also made the following observation about Taxation Ruling IT 2423:

The Applicant asked me to note in particular paragraph 5 of Taxation Ruling IT 2423 (a non-binding ruling) which is referred to in clause 17 of TR 93/32 to the effect that: ``... if rent was derived from a number of properties or from a block of apartments, that may indicate the existence of a business''.

Paragraph 5 of IT 2423 suggests only that a number of properties may indicate the presence of a business; it follows of course that it will not of itself be determinative.

In 15 CTBR (OS) Case 26, (Case 26) the taxpayer derived income substantially from her joint ownership of a block of flats (containing 22 living units) with her sister-in-law. A swimming pool was shared with a neighbouring block of flats owned by the taxpayer's husband and his brother. A garden was maintained and a staff of one caretaker and one cleaner employed on both buildings with casual labour as required. The building was erected and financed by F & Co., the husbands of the joint owners, in the course of their business as building contractors. The general supervision of letting, rent collecting, servicing and maintenance was carried out by the owners or by F & Co. on their behalf. No charge was made by F & Co. for the extensive assistance given in the supervision of the flats. It was held that a business was not being carried on by the owners of the block of flats.

On the other hand, Case G10 75 ATC 33 (Case G10), the taxpayer owned two properties of which six units were let as holiday flats for short term rental. The taxpayer, with assistance from his wife, managed and maintained the flats. Services included providing furniture, blankets, crockery, cutlery, pots and pans, hiring linen and laundering of blankets and bedspreads. The taxpayer also showed visiting inquirers over the premises, attended to the cleaning of the flats on a daily basis, mowing and trimming of lawns, and various other repairs and maintenance. The taxpayer’s task in managing the flats was a seven day a week activity. The Board of Review held that the activity constituted the carrying on of a business. In reaching that conclusion, the Board found:

It was clearly established in evidence that the money received by the taxpayer from the occupants of the flats was not solely a payment for the right to rent a flat for a certain period.

Taxation Ruling TR 97/11 Income Tax: am I carrying on a business of primary production? (TR 97/11) provides the Commissioners view of the factors used to determine if a taxpayer is in business for tax purposes. Its principles are not restricted to questions of whether a primary production business is being carried on.

In the Commissioner's view, the factors that are considered important in determining the question of business activity are:

● whether the activity has a significant commercial purpose or character

● whether the taxpayer has more than just an intention to engage in business

● whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity

● whether there is regularity and repetition of the activity

● whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business

● whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit

● the size, scale and permanency of the activity, and

● whether the activity is better described as a hobby, a form of recreation or sporting activity.

These factors are framed in TR 97/11 to reflect that the alternate outcome is as described in the final dot point. The analysis in your case must reflect that the alternate outcome would be to conclude that your activities are an investment.

TR 97/11 states the indicators must be considered in combination and as a whole and whether a business is being carried on depends on the 'large or general impression gained' (Martin v. FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551) from looking at all the indicators, and whether these factors provide the operations with a 'commercial flavour' ( Ferguson v. FC of T (1979) 37 FLR 310 at 325; 79 ATC 4261 at 4271; (1979) 9 ATR 873 at 884). However, the weighting to be given to each indicator may vary from case to case.

In the Rental Properties 2017 guide (Rental Properties guide) published by the Australian Taxation Office, states the following at page 5:

Most rental activities are a form of investment and do not amount to carrying on a business.

The Commissioner sets out two examples in the Rental Properties guide that discuss the issue of whether or not the owner of one or more rental properties can be said to be carrying on a business.

The first example, Example 3 on page 5 of the guide, outlines a situation in which the owners are not carrying on a rental property business. The Commissioner states:

The Tobin’s own, as joint tenants, two units and a house from which they derive rental income. The Tobin’s occasionally inspected the properties and also interview prospective tenants. Mr Tobin performs most repairs and maintenance on the properties himself, although he generally relies on the tenants to let him know what is required. The Tobin’s do any cleaning or maintenance that is required when tenants move out. Arrangements have been made with the tenants for the weekly rent to be paid into an account at their local bank. Although the Tobin’s devote some of their time to rental income activities, their main sources of income are their respective full-time jobs.

The Tobin’s are not partners carrying on a rental property business - they are only co-owners of several rental properties.

The second example, Example 4 on page 5 of the Rental Properties guide, outlines a situation in which the owners are carrying on a rental property business. The Commissioner states:

The D’Souza’s own a number of rental properties, either as joint tenants or tenants in common. They own eight houses and three apartment blocks - each block comprising six residential units - a total of 26 properties.

The D’Souza’s actively manage all of the properties. They devote a significant amount of time - an average of 25 hours per week - to these activities. They undertake all financial planning and decision making in relation to the properties. They interview all prospective tenants and conduct all of the rent collection. They carry out regular property inspections and attend to all of the everyday maintenance and repairs themselves or organise for them to be done on their behalf. Apart from income Mr D’Souza earns from shares, they have no other sources of income.

The D’Souza’s are carrying on a rental property business. This is demonstrated by:

● the significant size and scale of the rental property activities;

● the number of hours the D’Souza’s spend on the activities;

● the D’Souza’s extensive personal involvement in the activities; and

● the business-like manner in which the activities are planned, organised and carried on.

As shown in the above cases and the views of the Commissioner listed above, the indicators with the greatest weighting are the scale or volume of operations and the repetition and regularity of the activities.

Applying the relevant cases and indicators to your situation

In many instances, it is obvious that an activity is being carried on as a business and no further investigation is required. Where it is less obvious, regard must be had for any other potential outcome when determining whether a particular activity should be considered to constitute a business and in determining the tests to be applied in reaching such a determination.

There are many decided cases that consider the issue where the potential outcome is between ‘business or hobby’ or ‘employee or independent contractor’ (with an independent contractor being considered to carry on a business).

You have stated that information sourced from our website indicates that you will either have a hobby, and are therefore tax exempt, or you are carrying on a business of property investment which qualifies you for taxable deductions including claiming travel expenses and depreciation on plant and equipment. However, based on the information and documentation provided your activities do not have the nature of being either a hobby or recreational pursuit.

In your situation, the potential alternate outcome to carrying on a business is that the activity constitutes an investment and not a hobby. Both business and investment generate assessable income, therefore the analysis needs to be undertaken with this in mind.

Each case is based on the facts relevant to that specific situation and the conclusion about whether an activity constitutes a business is a conclusion of fact. Each case in unique.

In the context of considering the above authorities and factors, the following general observations of your situation have been made when making our decision on whether or not you are carrying on a business of letting your rental properties:

You own XX rental properties that you manage which were purchased over a period of around 20 years.

While this is a significant number of rental properties, as raised in the Cripps case a number of properties may indicate the presence of a business, however that fact alone will not by itself determine whether a business is being carried on.

We acknowledge that there are some elements of your activities that add weight that the activity has a business like nature such as the investment of capital, the length of time the activities have been undertaken and the number of properties you own. However, the majority of your activities are considered to be in line with those required of a passive investor in rental properties such as repairs and maintenance to service the properties. Additionally, the properties are not furnished and no services are being provided for the tenants.

While you own a significant number of rental properties, there is nothing special about the manner in which the activities related to the rental properties are undertaken that transform those activities from an investment into a business.

You have reported net gains in relation to the properties of under $XX,XXX in some income years and net losses of less than $$XX,XXX in other income years.

The rental returns you received in relation to the properties are merely from holding the properties, being passive income, and not from selling any properties. The net rental amount recorded during the recent income years has either been relatively low gains or low losses. It is viewed that the taxpayer’s involvement in the activity should be motivated by wanting to make a profit and their activities should be conducted in a way that facilitates this.

Your properties are rented out on average for X years, which would be viewed as being a reasonably long period. The relationship between you and the occupiers of the properties is that of a landlord and tenant; where the tenants have exclusive possession and control access to and from the properties.

You only spend X hours per week in relation to your rental properties and state that you only visit them on average X times a year. In comparison to some rental property owners, your weekly involvement with your properties is minor. Given the activities of other property owners who are considered to be carrying on a business of letting properties it could not be concluded that the level of repetition and regularity of your activity is the same.

While the management and maintenance of the properties is undertaken by you, the level of repetition of the activity is not as great as that noted in Case G10 which involved 12 units used for short-term accommodation. The activities of the taxpayer in that case was far greater than in your activities in relation to your XX properties, being a seven day a week activity and the size and scale of the activities undertaken by the taxpayers.

Your facts are similar to the facts contained in Example 3 of the guide in relation to the activities undertaken by the owners which are viewed as not being in business, with the exception of the number of properties involved in the example being three as opposed to your XX properties.

Example 4 in the guide outlined a scenario of taxpayers who owned 26 properties and were viewed as carrying on a business. While you have a similar number of rental properties, your facts are dissimilar because:

● The D’Souza’s spent on average 25 hours per week on the activities related to the rental properties while you state you only spend around X hours per week;

● The D’Souza’s carry out regular inspections while you state that you carry out inspections less often and estimate that you visit the properties X times a year; and

● The D’Souza’s have no other sources of income apart from the rental income and income earned from shares. However, you earn rental income, dividends from your shares, personal services income and have a superannuation pension.

Renovations have been undertaken on a number of your rental properties. You have engaged the services of tilers and plumbers, with the remaining work being undertaken by yourself. You stated that the renovations usually take between X to X weeks to complete, but in one instance has taken over X months. It is a rare business that does not seek to maximise its revenue by maintaining its assets to an acceptable standard, and while not decisive, it is relevant. But in doing that, it does not mean that they have conducted their activities in owning and managing the properties in a manner that is business-like. It would also be reasonable for an investor to renovate their rental properties to earn higher rental income and/or appeal to a different tenant market.

While we can appreciate that you wanted to complete as much of the renovation work yourself to save money it would be reasonable to expect anyone carrying on a business of letting properties to have any repairs/renovations undertaken in a timely manner to ensure that any period the rental property is not available for rent, or is rented out, is minimised. Additionally, it would be reasonable to expect that major renovations would not be undertaken by the property owners themselves, but that they would engage the services of professionals to undertake renovations so that they are completed in an expedient and professional manner.

It would not be considered reasonable to expect that anyone carrying on a business would have spent such lengthy periods of time on renovations, forgoing rental income for such a long period. Also, if the rental income was your main source of income, then it would be reasonable to expect that you would have wanted the renovations completed as quickly as possible so that you could make a profit from the rental income.

You keep records in relation to your properties. The types of records and tracking for a rental investment would be similar for both a passive investor and someone carrying on a business of letting rental properties given that rental income and expenses need to be recorded and property analysis reports and financial rations would be useful to invest further, or make any decisions about the performance of the rental property/ies.

You state that you selected the properties for a number of reasons including that that the rental returns from a number of properties was in line with the mortgage repayments. This is viewed as being the an investor attitude and not that of a business attitude which would be not to only have the mortgage repayments covered, but to make a significant profit from those properties.

You have stated that you do not intend buying or selling any of the properties in the near future. There is no evidence to support that you are seeking to expand or grow your activities through seeking opportunities to buy additional property/is and/or sell existing property/ies and use the proceeds to buy other property/ies that will provide a greater return which is suggestive of a business-like intention. This may indicate that you are keeping your investment properties long term investments similar to rental property investors.

After weighing up the relative business indicators and objective facts surrounding this case it is considered that you are not carrying on a business of letting rental properties and that your rental property activities are better described as leasing residential properties to receive income from a stream of rental income. The income is not derived from the services you provide, but from the letting of the properties and there is nothing special about the manner in which you conduct your rental activities that transform those activities from an investment into a business.

Activities constituting the mere maintenance or repair of a rental property and the mere collection of income do not indicate the existence of a business of renting property.

The activities of a taxpayer may change from year to year, or even during the income year, which may change them from being passive investors to carrying on a business of letting rental properties. However, it is viewed that your activities in the income year covered by this private ruling support that while you own twenty-one properties, you are a passive investor.

Accordingly, it is the Commissioner’s view that you are not carrying on a business of letting rental properties. Instead, the activity is undertaken as an investor in respect of a number of rental properties.

Question 2

Rental property travel expenses

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

Under the previous legislation, the full cost of travel to inspect or maintain a rental property had been an allowable deduction under section 8-1 of the ITAA 1997 if the sole purpose of the travel had been incurred in connection with gaining income from the investment property. In other circumstances you may be able to claim a partial deduction for your travel expenses.

However, from 1 July 2017 new legislation has been introduced which states that travel expenses relating to a residential investment property are not deductible unless certain conditions are met. The new legislation was introduced as an integrity measure to address concerns that many taxpayers had been claiming travel deductions without correctly apportioning costs, or had claimed travel costs that were for private travel purposes.

Under the new legislation you are no longer able to claim any deductions for the cost of travel you incur relating to a residential rental property unless you are carrying on a business in property investing or are an excluded entity.

An excluded entity is a:

● corporate tax entity;

● superannuation plan that is not a self-managed superannuation fund;

● public unit trust;

● managed investment fund; or

● unit trust or a partnership, all of the members of which are entities of a type listed above.

Similar to prior years, the travel expenditure cannot be included in the cost base of the rental property/ies for the purpose of calculating your capital gain or capital loss when you sell the property/ies.

Application to your situation

In your situation you have been claiming travel deductions in relation to your rental properties in previous income years.

As outlined above, it is not viewed that you are carrying on a business in relation to your rental properties. Additionally, you are not an excluded entity as outlined above. Therefore, you cannot claim deductions for any travel expenses incurred in relation to your rental properties.

Questions 3, 4 and 5

Deductions for the cost of depreciating assets

Income tax deductions for the decline in value of previously used (second-hand) plant and equipment in rental premises used for residential accommodation are no longer allowed. The changes are now law.

Under the old legislation, you could claim a deduction for the decline in value of certain items, known as depreciating assets, that you acquired as part of the purchase of your property, or that you subsequently purchased for your property.

New legislation has been introduced and from 1 July 2017, which provides that unless you are carrying on a business of property investing, or are an excluded entity (as discussed above), you cannot claim for depreciation of second-hand plant and equipment in rental premises used for residential accommodation.

The changes apply from 1 July 2017 to:

● limit previously used plant and equipment, being second-hand plant and equipment, acquired at or after 7.30 pm on XX/XX/201X, unless it was acquired under a contract entered into before this time; and

● plant and equipment acquired before 1 July 2017, but not used to earn income in either the current or previous year.

This is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors, being successive owners of a rental property, in excess of their actual value. The change of the legislation is aimed at removing a subsequent owner’s ability to claim a depreciation deduction for previously used plant and equipment assets (being the easily removable or mechanical fixtures and fittings) in properties.

This means that:

● plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential real estate properties;

● acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors;

● any investor who exchanged contracts prior to this date can continue to claim depreciation deductions for plant and equipment as they had previously done under the old legislation until either the investor no longer owns the asset or the asset reaches the end of its effective life;

● investors who purchased new plant and equipment for their residential investment property after 7:30 PM on XX/XX/201X will continue to be able to claim a deduction over the effective life of the asset, or until the asset is not owned by the investor;

● investors who purchased an investment property after 7.30pm on XX/XX/201X will have purchased the plant and equipment in the property, being second-hand plant and equipment, for which depreciation cannot be claimed; and

● any investor who purchases a brand new property can continue to claim depreciation for plant and equipment.

Note: The changes won’t affect an investor’s ability to claim the capital works component (deductions available for the wear and tear of the building structure and fixed items).

Application to your situation

You purchased all of your properties, with the exception of Property X prior to 7:30 pm on XX/XX/201X.

With the exception of Property X, you:

● can continue to claim depreciation for the plant and equipment purchased prior to 7.30 pm on XX/XX/201X to be used in your other properties, regardless of whether it was second-hand or new when purchased;

● cannot claim any depreciation for second-hand plant and equipment purchased after 7.30 pm on XX/XX/201X to be used in relation to your properties; and

● can claim depreciation for any new plant and equipment purchased after XX/XX/201X to be used in your rental properties.

In relation to Property, you state that you purchased that property after XX/XX/201X.

As discussed above, you are not carrying on a business of letting your rental properties. Nor are you an excluded entity. Accordingly, you are not excluded from having to apply the new legislation to depreciation of plant and equipment in relation to Property X.

In accordance with the new legislation you cannot claim any depreciation for any plant and equipment that was in Property X when you purchased it, or any second-hand plant and equipment purchased to use in that property after XX/XX/201X. However you can depreciate any new plant and equipment that you purchase after that date to use in that property.