Income tax deductions for the decline in value of “previously used” or “second hand” depreciating assets are no longer allowable. The changes apply from 1 July 2017 unless either:

• the previously used asset was acquired under a contract entered into prior to 7.30 pm on 9 May 2017; or
• the asset was acquired prior to 1 July 2017 and the entity was not entitled to a deduction e.g. it was not used to earn income.

As such, the effect of the amendments is the investor will only be allowed to deduct the decline in value of depreciating assets if the asset is acquired new.

Example
Mr Anderson acquires a new unit and uses it as his main residence in the first year of ownership. At the start of the second year, it is rented out. As the assets in the first year are used for personal enjoyment, Mr Anderson is not entitled to a deduction for the decline in value of those assets while the unit is rented out.
For assets that an investor transfers to a low value pool, the amendments ensure that the taxable proportion of such assets transferred is reduced resulting in the same treatment as other assets subject to the new rules.

These changes do not apply to deductions arising in the course of carrying on a business or to institutional investors.
Finally, where an is sold or ceases to be used by the investor, the balancing adjustment is reduced to account for the deductions no longer allowed under the new rules. Consequential changes to the CGT Rules (CGT event K7) ensures that, where a balancing adjustment occurs to an asset where there has been no deduction for the decline in value of an asset under the amendments, a capital gain or loss will arise under CGT event K7 (generally the difference between the cost of the asset and its sale price).