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. In the space of property investing, these items are classified as either Plant and Equipment or Building. 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.

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
‣ Capital Works Allowance

2.
Plant and Equipment

Also known as:

‣ Division 40 (ATO Term)
‣ Fixtures and fittings
‣ Capital Allowance

1.

What is Capital Works (division 43)?

Also referred to by the Australian Tax Office as Division 43, it is 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:
ResidentialCommercial
Built-in wardrobesBuilt-in workstations
Toilets and vanitiesCar parking space
Basins and sinkGlass partitions
Concrete slabKitchenette
Retaining wall and fencesSteel-framing of warehouse
Timber framing
Does my building qualify for (Division 43) capital works tax deductions?

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?

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 Year21 Aug 197920 July 198222 Aug 198418 July 198516 Sept 198727 Feb 1992 to Present
Structural Improvements2.5%
Residential4%2.5%
Offices, Warehouses & other Commercial2.5%4%2.5%
Manufacturing2.5%4%2.5%4%
Hotels, Motels & Guest Houses2.5%4%2.5%4%
Key:2.5%4%

2.

What is Plant and Equipment (division 40)?


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 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 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:

ResidentialCommercial
OvenFire hydrant booster
RangehoodBilli hot water unit
Air-conditioning unitsDoor closers for door struts
Smoke alarmsCoffee machine
Down lightsWarehouse cranes and hoists
Electric garage door & remotes

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?
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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 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 depreciation?

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

Property Tax Depreciation Calculator