Tax Depreciation for Division 43 Items

What is Division 43 in a Tax Depreciation Schedule

Today, we are looking at Division 43.

For more reading on Div 40 click here and for a Div 40 vs Div 43 comparison click here

Within the tax depreciation industry Division 43 is called many things:

• Div 43
• Capital Allowance
• Capital Works
• Building Allowance
• Building Works
• Special Building Write-off
• Special building works

Regardless of what you know it as you first need to know what you can claim in tax depreciation deductions from the ATO.

Div 43 is typically split between Residential Investment Properties and Commercial Investment Properties.

Let’s start:

Commercial Investment Properties

Commercial property falls into two categories:

• Commercial (general)
• Commercial (Manufacturing)

General Commercial investment properties:

Built Pre 20 July 1982: Capital Works cannot be claimed
Built 21 July 1982 – 21 August 1984: Capital Works claimable at 2.5%p.a.
Built 22 August 1984 – 15 September 1987: Capital works claimable at 4% p.a.
Built 16 September 1987 and onwards: Capital Works claimable at 2.5% p.a.

Manufacturing Based Investment Properties:

Built Pre 20 July 1982: Capital Works cannot be claimed
Built 21 July 1982 – 21 August 1984: Capital Works claimable at 2.5%p.a.
Built 22 August 1984 – 15 September 1987: Capital works claimable at 4% p.a.
Built 16 September 1987 – 26 February 1992: Capital Works claimable at 2.5% p.a.
Built 26 February 1992 and onwards: Capital Works claimable at 4% p.a.

To simplify all that here’s a general guide:
If it was built before 15 September 1987 you can only claim tax depreciation on more recent renovations.
If it was built after 15 September 1987 you’ll get at least 2.5% p.a. Deductions on the original construction costs.

You can read more about commerical investment proeprties here

Residential Investment Properties:

Residential property are allowed to depreciate Div 43 items at 2.5% p.a. So long as the items qualify.

But more on what qualifies later

Let’s say your residential investment property cost $300,000 to build in 2017 (excluding all Div 40 items).
That means you can claim the $300,000 at 2.5% giving you $7,500/yr in tax deductions.

($300,000 x 2.5% = $7,500)

Now let’s say you have another $40,000 in external works

That’s another $1,000/yr in tax deductions.

($40,000 x 2.5% = $1,000)

When your property reaches 40-years of age (year 2057) you will run out of claimable Capital Works on the original construction items.

But…

Renovations newer than the original build date (2017 in this example) also get their chance at 40-years of life.

Meaning a new shed built in 2022 will give you deductions up to the year 2062.

What Qualifies for Div 43 deductions:

If your investment property was built before 15 September 1987 you cannot claim yearly depreciation on the original structure.

That’s because it’s too old.

The ATO made a ruling that any residential property built before 15 September 1987 cannot claim Capital works deductions for the original construction costs.

But you can still claim for any renovations after that date.

My caveat:
External renovations like landscaping need to be newer than 27 February 1992.
That’s another ATO ruling Quantity Surveyors have no power over.

How is Div 43 Calculated?

The ATO permits qualified, registered, Quantity Surveyors to estimate the original construction costs (plus any renovations and improvements) of your building, outbuildings and external capital works.

This is done by using historical construction costs data from reputable sources such as Rawlinsons Construction Cost database as well as the quantity surveyor’s own database collected over the years.

The quantity surveyor will calculate the cost per square metre to build your property based on the construction methods used.

Different construction methods have different overall costs.

For example; a typical slab on ground, timber frame brick and tile house is about as cheap as residential construction costs get.

This could range from around $450/sqm in the late 1980’s to over $2,000/sqm for a house built today.

How is building age calculated?

The Quantity Surveyor will use various online tools to track down the build date. But often the most accurate dates can be found during the property inspection.
Items like PVC pipes, hot water units, fire hose reels and termite barrier installation certificates have exactly the information we are hunting

Want to see some real world results

The best place to see real results 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

Or 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