Property investors looking to maximise their property depreciation deductions need to understand the difference between division 40 and division 43 regulations.
Division 40 and Division 43 are two main pieces of legislation that affect the rates assets are written off and claimed. Understanding the difference between the two is of particular importance when replacing existing structures or items on an investment property.
- Division 43
Division 43, also known as building write-off or capital works allowance can be claimed at 2.5 per cent over forty years. It is a deduction designed for the structure of a building and the items within it that are deemed to be irremovable.
Not all properties qualify for this deduction, for example, a residential property that began construction before 15 September 1987 will not qualify. However, there are exceptions to this rule in regards to renovating. Any renovations completed after the legislated dates set by the ATO may allow a property owner to these deductions, even if the renovations were completed by the property’s previous owner.
- Division 40
Division 40, also known as plant and equipment, applies to the removable assets found within an investment property. Examples of division 40 items include lights, blinds and ceiling fans.
These assets depreciate at a much faster rate than structural items since they depreciate according to an individual effective life e.g. in residential properties carpet can be claimed at 20 per cent over ten years. All investment property owners can claim for Division 40 assets, regardless of the property’s age.
- Common mistakes
It is quite common for investors to incorrectly allocate deductions for items by not seeking expert advice. Particular assets can cause great confusion since they qualify in part for Division 40 and partly for Division 43 e.g. an air conditioning unit falls under Division 40 while the ducting for the same unit comes under the Division 43 allowance.
To ensure you correctly maximise your property’s deductions within the ATO guidelines, it is a good idea to employ the services of a specialist Quantity Surveyor. Quantity Surveyors can complete a site inspection, listing all assets and outlining the deductions correctly.