Understanding tax depreciation lingo can sometimes be confusing but as an investor, it’s important that you have a good understanding of the depreciation deductions you can claim to ensure you’re getting the most out of your investment property.
As outlined by the Australian Taxation Office there are two categories that make up depreciation deductions, division 43 capital works deductions and division 40 plant and equipment depreciation.
What are capital works deductions?
Capital works deductions are income tax deductions an investor can claim for the wear and tear that occurs to the structure of the property and items considered to be permanently fixed to the property.
This includes any structural improvements that may have been made during a renovation within the relevant dates. In a residential property, capital works deductions cover the following items:
- Bricks, mortar, walls, flooring and wiring
- Built-in kitchen cupboards
- Clothes lines
- Doors and door furniture (handles, locks etc.)
- Fences and retaining walls
- Sinks, basins, baths and toilet bowls
Some common items in commercial properties that can be claimed as capital works deductions include:
- Bricks, mortar, walls, flooring, roofing and wiring
- Sinks, tiles, basins and toilet bowls
- Ducting for air conditioning
Particular assets can cause confusion because some parts will qualify for plant and equipment depreciation while other parts qualify for capital works deductions. An example of this is an air conditioning unit, where the unit itself depreciates under division 40 whilst the ducting for the same unit falls under division 43.
Similarly, an in-ground pool falls under the division 43 whilst the pumps and filtration equipment for the pool are division 40, depreciating plant and equipment assets.
As a general rule, any residential building where construction commenced after the 15th of September 1987 will entitle their owner to capital works deductions at a rate of 2.5 per cent per year for up to forty years.
In a commercial building, capital works deductions generally apply to buildings where constructed commenced after the 21st of August 1984.
If your property was constructed prior to these dates, it is still important to get in touch with a qualified quantity surveyor, such as BMT, as often these buildings will have undergone some form of renovation which can result in capital works deductions for the owner.
Structural improvements, including those made by previous owners, can generally be claimed on work commenced after the 26th of February 1992.
To order a BMT Tax Depreciation Schedule to ensure you are maximising your depreciation deductions on your investment property, you can Request a Quote online or call us on 1300 728 726.