Updated: August 2023
Division 43 Capital Works v Division 40 Plant and Equipment in Tax Depreciation Schedules
What is the difference?:
When talking about investment property depreciation, tax depreciation schedules are broken into two subcategories:
- Division 40 (Plant and Equipment)
- Division 43 (Capital Works)
Division 43 verse division 40
Division 43 is available to structural and fixed items built after 15 September 1987 for the main residence and after 26 February 1992 for external works and outbuildings, making Div 43 an integral part of any tax depreciation schedule
While Division 40 only applies to plant and equipment items that are brand new.
Meaning you cannot claim depreciation deductions on plant and equipment that is not straight from the showroom warehouse.
You cannot claim depreciation deductions on 2nd hand items purchased through sites like gumtree.
*unless you own the investment property in a company name.
If you are in a position where you can claim both division 40 and division 43 (like brand new home buyers) then you are in the box seat for maximum tax savings
Division 43 Depreciation:
Division 43 is where all structural and ‘fixed’ assets will be found in your depreciation schedule.
It includes big items like:
- Sheds
- Buildings
- Driveways
- Retaining walls
- Inground swimming pools
And smaller items like:
- Letterboxes
- Tv antennas
- Clothes lines
- Garden edging
- Security screens
to name just a few.
Division 43 (div 43) also includes improvements made to the property, like renovations, extensions and upgrades
For example:
- New kitchens and bathrooms
- Replacement entry locks and doors
- Roof restorations
- Ceiling insulation
- Additional patios and pergolas
- New paint jobs
Other division 43 improvements common to investment properties are repairs.
Items like:
- Fixing cracked pools
- Underpinning a sunken house slab
- Repairing water damage
- Replacing rusted out guttering
And just about any other repairs you can think of
Each year you can claim Division 43 items at 2.5% of their original fully installed value
An example for you:
Let’s say you own a 20 year old investment property and want to claim the Capital Works (division 43) deductions in your tax return.
And let’s say your house cost $200,000 to build when new.
That means you can claim 2.5% of that $200,000 each year in your tax return as a capital works deduction.
($200,000 x 2.5% = $5,000/yr in tax depreciation)
Now, let’s say the previous owners also spent $120,000 extending the house to make an additional bedroom and en-suite.
You can also claim 2.5% p.a. of that in your tax returns too.
($120,000 x 2.5% = $3,000/yr in tax depreciation)
One last renovation:
Before you rent out the property you repaint the house in a tenant friendly colour. This costs you $10,000
You can claim that $10,000 at 2.5% p.a. too
($10,000 x 2.5% = $250/yr in tax depreciation)
All up: in this example you can claim $8,250/yr of tax deductions in investment property tax depreciation schedule.
Division 40 Depreciation
If an item doesn’t fall under Division 43 in your tax depreciaiton schedule, it’ll most likely fall under division 40. Plant and equipment.
Plant and equipment covers items considered fixtures and fittings or easily removable assets.
Items like:
- Carpet
- Curtains
- Appliances
- Light shades
- Hot water systems
And more
The ATO assigns every Division 40 item an ‘effective life’ and your tax depreciation schedule provider must follow the ATO guidelines on effective lives.
Within Division 40 (div 40) items are categorised according to their estimated market value.
Prime Cost & Diminishing Value Items
Items over $1,000 go into the Prime Cost Value method (or alternatively the Diminishing Value Method). Your accountant will help advise you on which to choose for your tax deductions.
Here, the items depreciate at various rates.
From as little as 3.33% p.a. for a passenger lift, right up to 20% for many other items.
Low Value Pool
The Low Value Pool is for plant and equipment items greater than $300 but less than $1,000
These items fall into the low value pooling category and get depreciated at 18.75% in the first financial year. Then 37% p.a. every year thereafter.
Note: The trick is to try and only have low value pool expenses occur in the last few days of June. That way you minimise the time they depreciate at the lower 18.75%.
Immediate Asset Write Off
The final category in division 40 is immediate (or) instant asset write off.
This is for items under $300 in value that are not part of a ‘set’.
For example:
An individual chair may cost $299 and is claimable at 100% write-off in the financial year the expense occurred.
But if that chair was part of a set you purchased, say for $1,000 then you cannot claim immediate asset write off and must claim the ‘set’ in the Low Value pool at 18.75%-37.5%
Or if over $1,000 claim the set within the Diminishing Value method at 15%p.a.
Calculating Depreciation Between Div 40 and Div 43
To compare the depreciation calculations between division 40 and division 43 it really comes down to the overall build quality and size of your house. This will largely determine if you need a tax depreciation schedule.
Typically, division 40 items account for around 20% of the overall build cost of a property.
Meaning a $500,000 build will have around $100,000 in plant and equipment items and around $400,000 in capital works.
While claiming division 43 items at just 2.5% p.a. may sound insignificant to some, it is still a lot of tax savings.
Want to see some real world results
The best place to see what other investors are getting in tax depreciation schedule deductions for properties similar to yours is by visiting our client portfolio page here
Still have questions?
The best thing to do is to simply ask. I’ll answer any questions you have about tax depreciaiton for your investment property
For further reading on more of our quantity surveyor articles click here
Or to visit our home page for Brisbane tax depreciation services click here
This article was written by William Callaghan A.A.I.Q.S.
2nd generation Quantity Surveyor and founder of WRC Quantity Surveying
