What is Division 40?

Division 40 (also known as plant & equipment, depreciating assets or capital allowance) is the category that covers assets that are easily removable from a building rather than attached or fixed. These include appliances and furnishings. Each plant or equipment within your property has an effective life measured in the number of years.

The tax commissioner determines the effective life under the latest Taxation Ruling. It is used to calculate the asset’s decline in value.

There are two questions we always ask an investor to answer this one.

1. When was your building built?
2. What type of building do you own or lease?

Legislated Changes to Tax Depreciation in a nutshell

Property investors who sign the contract for a purchase of a second-hand residential after 7:30pm on 9th of May 2017 are not eligible to claim property depreciation on plant and equipment (division 40). These investors are still able to claim tax depreciation on brand-new plant and equipment like carpet and air-conditioning units.

In what scenarios are you eligible to claim property depreciation?

• Brand new residential properties
• Buildings that still qualify for building depreciation (see division 43)
• Second-hand properties that have had substantial renovations
• Second-hand properties that have had minor renovations
• Investors that purchase property in Managed Funds
• Corporate entities that buy properties (e.g. Pty Ltd Company)
• Second-hand property owners who purchase new plant and equipment
• Owners who switch from Principal Place of Residence (PPOR) to rental properties prior to 1^st July 2017
• You own a property that is not residential (commercial, manufacturing or motels)

Plant and equipment fall under the Division 40 asset class and are depreciated as per the following methods:

Immediate write-off

Eligible plant and equipment items costing $300 or less qualify for an immediate full deduction and have been applied accordingly in the calculations.

Low-value pool

Includes assets that are purchased in the current financial year worth less than $1,000 (low-cost assets) and also those assets that have been acquired before this current financial year and currently worth less than $1,000 (low-value assets) are eligible for the low-value pool; these are depreciated as follows:

• 18.75% in the first year (applicable to low-cost assets only)
• 37.5% in the subsequent years (applicable to all assets less than $1,000)

Effective life depreciation

For any other items that do not fall within the above criteria as either low-value pooled items or immediately written off, they will be depreciated as per the effective-life schedule.

When it comes to claiming depreciation on an investment property, there is also division 43 (also known as capital works, building write-off or building allowance). Compare them here.