Tax Depreciation Schedule Australia

A tax depreciation schedule itemises what an investment property owner can deduct under Division 40 and Division 43 of the Income Tax Assessment Act 1997, and projects those deductions year by year. For the plain definition, start with our guide to what a tax depreciation schedule is. This section sets out how the two divisions differ.

Division 40 is plant and equipment. It covers the depreciating assets in a property, its plant and equipment, such as carpet, internal blinds, ovens and split-system air conditioners. Each asset is deducted over its own effective life, using one of the two methods described below.

Division 43 is capital works. It covers the building and any extension, alteration or improvement to it, plus structural improvements such as fences, retaining walls and sealed driveways. The deduction is a flat percentage of the original construction cost, and the ATO will not accept the purchase price, the insured value or the replacement cost in its place. Where the construction records are gone, it accepts an estimate from an appropriately qualified person. Taxation Ruling TR 97/25 lists quantity surveyors, clerks of works, supervising architects and builders experienced in costing similar projects.

An item falls under one division, never both. Section 40-45(2) keeps capital works out of Division 40 even where they were built too early to qualify under Division 43. The ATO’s item tables in its Rental properties guide, based on Taxation Ruling TR 2004/16, give the treatment of common items, and some of it surprises owners. A split-system air conditioner is a depreciating asset, but air conditioning ducting, pipes and vents are capital works. Carpet that lifts out without damage is a depreciating asset, while tiles, vinyl and built-in cupboards are capital works.

Division 43 rates depend on when construction began. Construction begins with the first step of the construction phase, such as pouring the foundations (section 43-80). For a residential building, work begun between 18 July 1985 and 15 September 1987 attracts 4% a year for 25 years, and work begun from 16 September 1987 attracts 2.5% a year for 40 years (or 4% if it was built under a contract signed before that date, section 43-220). A home begun before 18 July 1985 has no deduction on its original structure, although qualifying work done to it later can. Non-residential buildings such as shops and offices qualify from 20 July 1982, at 2.5% until 21 August 1984, 4% from 22 August 1984 to 15 September 1987, and 2.5% after that. For work begun after 26 February 1992, some uses lift the rate to 4%, among them short-term traveller accommodation and industrial activities. The deduction starts when construction is completed, counts only the days the property is used to produce income, and passes to each new owner for whatever remains of the period.

The 2017 change applies only to Division 40. Section 40-27 of the ITAA 1997, inserted by the Treasury Laws Amendment (Housing Tax Integrity) Act 2017, applies to assets acquired at or after 7:30 pm AEST on 9 May 2017. It denies Division 40 deductions on plant and equipment in a residential rental property that you did not hold when it was first used or installed, and it can also catch assets used while the property was your own home. The section sets out its own exceptions, among them property used in carrying on a business, assets supplied with a new home nobody has lived in, corporate tax entities, and superannuation funds other than SMSFs. Assets you buy new and install yourself remain claimable. The Act did not touch Division 43, so capital works on a second-hand property can still be claimed, and those deductions reduce the property’s cost base for capital gains tax when you sell.

For Division 40 items, the ATO allows two calculation methods, and a professional schedule shows both so your accountant can choose. The diminishing value method front-loads deductions — each year’s claim is a percentage of the asset’s remaining value (200% divided by the effective life) — while the prime cost method spreads the deduction evenly across the asset’s effective life. Effective lives come from the ATO’s published determinations, and low-cost items get accelerated treatment: assets costing $300 or less can generally be written off immediately, and items under $1,000 can enter a low-value pool with higher pooled rates. Your accountant applies the current-year thresholds; the schedule is built so either method can be claimed.

A complete schedule is a one-off document that serves for the life of the investment: it itemises every claimable asset with its value, effective life, and both calculation methods, then projects the deductions year by year for up to 40 years — so it only needs to be commissioned once, and updated only after significant renovations.

Our ATO-compliant tax depreciation schedules are prepared by qualified quantity surveyors and RICS-certified valuers. A thorough on-site inspection ensures that every claimable item is identified and correctly classified. Many investors miss thousands of dollars per year in legitimate tax deductions simply because they have never obtained a professional depreciation schedule. The fee is generally treated as a cost of managing your tax affairs and claimed accordingly — confirm the treatment with your accountant — and a schedule typically pays for itself many times over in the first year alone.

Before commissioning one, it is worth checking that there is something left to claim: three dates decide it, and you can check two of them yourself.