What is Property Tax Depreciation?

Depreciation is the wear and tear that occurs as things get older. As items get older, the value of these items also decrease in value. This is called depreciation. When it comes to your investment property, these items are classified as either Plant and Equipment or Capital Works. The wear and tear of either plant and equipment or building in an investment property is called tax depreciation. Depreciation that you as an investor can claim as tax deductions enabling also increased tax refunds.
To calculate your depreciation deduction, we apply general depreciation rules unless your asset is eligible for the instant asset-write off or simplified depreciation rules for small business. The ATO prescribes two methods - prime cost method or diminishing value method. Both that can be used to claim on your property depreciation.

A Duo Tax Depreciation Schedule is an ATO complying document that consists of 2 parts:

1. Capital Works

Also known as: Division 43 (ATO Term) | Building Write-Off | Building Allowance

Capital works refer to the items that make up the building and those that are fixed to the building.

Here are some items you could depreciate part of the building:

Residential 

Built-in wardrobes
Toilets and vanities
Basins and sink
Concrete slab
Retaining walls and fences 
Timber framing

Commercial

Built-in workstations
Car parking space
Glass partitions
Kitchenette
Steel-framing of warehouse

Does my building qualify for (Division 43) capital works tax deductions?

Capital works refer to the items that make up the building and those that are fixed to the building.

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

Using these two key pieces of information, we can deduce approximately how much your brand new or second hand property can claim on construction costs.

Duo Tax have developed an easy guide to refer to check whether your property qualifies for Capital Works.

Capital Works Depreciation Rate

(Based on Construction Commencement Year)
Construction Year 21 Aug 1979 20 July 1982 22 Aug 1984 18 July 1985 16 Sept 1987 27 Feb 1992 to Present
Structural Improvements 2.5%
Residential 4% 2.5%
Offices, Warehouses & other Commercial 2.5% 4% 2.5%
Manufacturing 2.5% 4% 2.5% 4%
Hotels, Motels & Guest Houses 2.5% 4% 2.5% 4%
Key: 2.5% 4%

2. Plant & Equipment

Also known as: Division 40 (ATO Term) | Depreciating Asset | Capital Allowance

Items that are easily detachable from the property and generally these include items that are motorised and have a shorter expected life span.

Plant and Equipment assets are differing in the rates of tax depreciation for both commercial and residential properties and is dependent on the ATO’s Asset Effective Life Schedule which gives guidance as to how many years the ATO feels an asset may wear out.

Plant and equipment assets offer you accelerated levels of property depreciation due to them in nature being faster wearing when compared to the bricks and mortar of your building. That means you as an investor can claim more immediately tax depreciation, typically within the first 5 years. The ATO then allows quantity surveyors to assess the value of these assets to include into your tax depreciation schedule.

Some items that are considered plant and equipment:

Residential 

Oven
Rangehood
Air-conditioning units
Smoke alarms
Downlights
Electric garage door & remotes

Commercial

Fire hydrant booster
Billi hot water unit
Door closers for door struts
Coffee machine
Warehouse cranes & hoists

There are 2 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?

If you are unsure whether you qualify, it is best to speak to one of our experts on 1300 185 498.

The majority of our investors claim an average of $7,500 on tax depreciation for their tax return in their first year alone.

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