Hot water heater depreciation

Updated January 2024

Rental Property Hot Water Heater Depreciation

Hot water units… Every residential rental property has one. Even if it’s a shared water heater in a highrise building.

The best thing about them is that they’re a tax deductible item, when used for income producing purposes.

Hot water heaters fall into two deduction categories…

Division 40 and Division 43 deductions for hot water heaters

Hot water heaters qualify for both division 40 and division 43

Division 40 hot water heaters

Div 40 (plant and equipment) deductions is where the hot water unit cost base is categorised for depreciation. Brand new electric hot water systems depreciate at 16.66% pa while solar units depreciate at 13.33% pa.
In essence, this category includes the heater unit, solar panels, invertors, motors, etc.
But it <b>does not include</b> the pipe work or electrical cabling. These items fall into Division 43.

Division 43 hot water heaters

Div 43 (Capital works) deductions is where the pipework, plumbing and electrical work is claimed as a deduction.
It is typically depreciated at 2.5% pa over a 40-year period.

Can you claim deductions for old hot water heaters?

Yes you can… If your property qualifies.
To qualify, your residential property must be owned in a company name.

Older residential property is treated differently to brand new property when owned in personal names or trusts.

If you have a commercial investment property, then any ownership structure qualifies you as all commercial property can claim deductions on both new and old plant and equipment items.

How to Claim a replacement hot water heater as a deduction

When you replace an existing hot water system with a new one, there’s the opportunity to claim the costs as a 100% instant asset write-off under the repairs and maintenance rental depreciation category.

To do this you must first meet some criteria.

  • You must replace old with brand new (not sort of new)
  • You must buy the unit from a retail store or have a plumber supply it (no gumtree or eBay purchases
  • You must replace like-for-like (no upgrading to bigger or better systems or going from electric to Solar

On the third point, you can still claim the tax deductions for the new system if you upgrade to a bigger or better unit. You just can’t claim the instant write-off.
Instead, you claim under division 40 where the new system depreciated at 16.66%pa if electric or gas – and 13.33% if Solar

This can all get very tricky and confusing, so it’s best to speak with your local Quantity Surveying expert to get the right advice.

Who should you choose as your quantity surveyor?

The best quantity surveyor you can afford

There’s at least 140 companies providing tax depreciation schedules in Australia now.
Some are fantastic value for money. Some are overpriced. And some are a total waste of money.

So do your research and choose a qualified quantity surveyor who really knows investment property deductions.

Tip: make sure they send a qualified quantity surveyor to your house to do a physical inspection.
Many send an unqualified tick-sheet guy.
Some don’t send anyone at all!

Have any Questions?

Simply get in touch with me and I’ll personally address any questions you have. Or, you can always start at the begining.

If you found this helpful, you may also find some of my other articles beneficial too. And to see some real life examples of what our clients have been receiving in tax depreciation deductions, check out our Client Portfolio page

This article was written by William Callaghan A.A.I.Q.S.
2nd generation Quantity Surveyor and founder of WRC Quantity Surveying

Published March 2023