Division 40 depreciation

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Cost of Building a House in Sydney in 2022
20 April, 2022
Capital Works Deductions (Division 43)
2 August, 2022

Division 40 regulates tax deductions you can claim on removable assets. These assets can significantly decline in value during their use, and that’s why Division 40 is important.

What is Division 40 depreciation?

Division 40 is also known as plant and equipment depreciation, or, in other words, depreciation related to the removable assets in a residential or commercial property. It is often hard to differentiate it from Division 43, which applies to capital works. Owners can claim depreciation for the wear and tear of these assets. In general, Division 40 is a capital allowance you can claim on removable assets.

What are removable assets?

Division 40 regulates the deduction of assets that can be easily removed from a residential or commercial property. They are often electronic in nature, such as fixtures and fittings. On the other hand, Division 43 relates to the deduction available for irremovable assets and assets that are a part of the building structure.

In residential properties, we often have the following removable assets:

  • air conditioning units
  • security systems
  • heaters
  • blinds
  • swimming pools
  • light fittings
  • ceiling fans
  • dishwashers
  • stoves
  • fans
  • hot water systems

While in commercial properties, we often have:

  • desks
  • blinds
  • carpets
  • chairs
  • air conditioning units
  • commercial stoves

Division 40 depreciation rates in Australia

The depreciation rates on plant and equipment assets can be calculated according to their effective life. It is defined and regularly updated by the tax legislation. The depreciation rates vary by asset and by industry. However, it is expected that assets have shorter effective life in comparison to buildings. Also, some removable assets wear and tear faster than others. For example, it is estimated that carpets have a shorter effective life in comparison to air conditioning units. The plant and equipment’s effective life is defined by ATO, with more assets depreciation data.

Depreciation schedule of plant and equipment

It’s best to arrange the depreciation schedule both before and after the renovation work to get a clear overview of the assets that are planned to be removed/added during the renovation. Also, a depreciation schedule helps in maximising your depreciation claim,  so the best solution would be to hire a registered quantity surveyor to help you with the depreciation schedule of desired assets.

Latest legislative changes regarding Division 40 in Australia

The latest legislative changes regarding Division 40 happened in May 2017. One of the most significant changes was that you can’t claim second-hand plant and equipment assets on your annual tax depreciation deductions and Capital Allowance. That means deductions coming from Division 40 were reduced to a great extent, but there ate still some deductions you can benefit from.

In summary, the latest change affects:

  • second-hand residential properties purchased after 7:30 9th May 2017
  • residential properties purchased before 7:30 9th May 2017, but hot used for income-earning purposes during the 2017 income year.

However, property owners can still claim for new plant and equipment assets added to their property and also for full capital work deductions. These legislative changes apply to residential property owners only. All residential plants and equipment used before 9th May 2017 or acquired before 1st July, but not used to earn income, are no longer eligible for tax depreciation.

The change doesn’t apply to:

  • new residential rental properties
  • commercial properties
  • new plant and equipment assets that fall under Division 40 depreciation, purchased by the current owner.

However, qualifying removable assets that were obtained for the second-hand property can also be depreciated if they are used for income-earning purposes.

Get your Depreciation schedule today with PBAQS

We’ve helped dozens of businesses with Division 40 depreciation schedules in Sydney and the entire NSW. You can contact us here.

Angelo Antidormi
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