Capital works deduction and depreciation – how will it affect you?

Tuan Duong

With legislative changes well sunken into the property market, it is important to visit the pattern as an investor moving into future years. Legislative changes imposed on the 9th of May 2017, no longer allows property investors to claim what is known as Division 40 depreciable assets on previously used assets for residential properties.

Division 40

Division 40 items are commonly identified as:

  1. Plant and equipment OR
  2. Fixtures and fittings

Both above refer to the same and include assets such as:

  • Rangehood
  • Downlights
  • Water heater
  • Ceiling fans

Generally these items have a shorter useful life than the structural components that make up a building. You can read more about Division 40 assets here. Given the new laws, Division 40 assets will not be as commonly found as Division 43 Capital Works deductions. Generally the reason being that a majority of investors are still purchasing existing properties with previously-used plant and equipment assets. As a result of the new ruling, these assets are no longer claimable. Which makes this article evermore important for you as an investor.

Divison 43 – Capital Works

It is important to note that Division 43 Capital Works is unaffected in its entirety which is great news for residential property investors.

Capital works deductions will include such items:

  • Built in wardrobe
  • Walls and windows
  • Kitchen
  • Bathroom
  • Extension areas
  • Garage areas

Capital works components make up 80% of the total cost of construction. As a result, a second-hand house, investors will lose 20% of the total depreciation on plant and equipment however still able to claim the balance of 80% which is made up of that Capital works component (bricks and mortar of the property).

Qualifying Investment Properties

A couple of items that we note when qualifying residential property investors:

  1. Was the residential property built after 15th of September 1987
  2. Did the owner purchase the property after 9th of May 2017 (exchange contract date)
  3. Has the property been renovated by the current or previous owner(s)

Duo Tax Quantity Surveyors is able complete a brief assessment by researching your property’s data prior to you engaging us for depreciation advice. This ensures you receive the results you are looking for in terms of ATO-compliance and cash-flow positive.

Inquire with us on 1300 DUO TAX, send us an email via reply or via our contact page if there is even the slightest doubt you have whether you may qualify for for either Division 40 or Division 43 deductions.

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Disclaimer: Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to property investors. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal or tax advice. You should, where necessary, seek a second professional opinion for any legal or tax issues raised in your investing affairs.

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Tuan Duong

Tuan is an award winning Quantity Surveyor and leads Duo Tax Quantity Surveyors – Australia’s fastest growing provider of Tax Depreciation.

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