Put simply, the new depreciation schedule delays the depreciation tax benefits for property investors.
The key changes to the schedule are as follows.

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From 21 September 1999

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• The removal of accelerated depreciation

• The ability to re-assess the effective life of an investment

• The ability to balance adjustments for capital gains or losses on disposal

• The removal of the balancing charge for roll-over

 

From 1 July 2000

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• The introduction of a low value pool for items with a value less than $1,000

 

From 1 July 2001

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• A review of capital allowances rates on buildings

 

Of all of the points above, the two with the greatest interest for property investors are the removal of accelerated depreciation rates and the introduction of a new ‘low value pool’ for items costing less than $1,000.

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Let’s now explore some of these points in more detail.

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Removal of accelerated depreciation

The loss of accelerated depreciation is a telling aspect of the new legislation.

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Under the old system, depreciation rates were generally based on the effective life of an item – loaded by 20% – and lumped into one of seven broad categories. In a practical sense, this meant those items with an effective life of say, 30 years, would receive the same rate of depreciation (20% diminishing return) as say, an item with an effective life of 13 years.

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Under the new system, depreciation rates for items acquired after September 21, 1999 are based solely on the effective life of that item, with no loading or broad-branding.

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This means the annual depreciation deduction for an item under diminishing value will now be calculated as follows:

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Depreciation deduction = undeducted cost x (150%/effective life).

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The ATO is currently working on a revised schedule for the ‘effective life’ of common items. At this stage, the effective life of common depreciable items for rental properties is not expected to change. Accordingly, the table below remains a useful guide.