Unlock Significant Savings With Division 40 Depreciation
Turning Everyday Wear and Tear Into Powerful Tax Savings
Being an ambitious and adaptable property investor, you’re certainly no stranger to taking on the many challenges thrown at you by the market. Whenever you can, you take advantage of every avenue available to you to maximise your investment’s financial potential.
But, are you missing out on one of the most overlooked opportunities … Division 40?
This significant allowance, permitted by the Australian Tax Office (ATO), allows you to claim the wear and tear on your property’s Plant & Equipment … possibly unlocking thousands in tax deductions.
And here at Washington Brown, we’re the Div 40 experts.
We’ve proudly helped over 315k people turn their assets’ unavoidable wear and tear into real, hard cash savings with a depreciation schedule. And, the good news is, we can do exactly the same for you … today.
What Is Division 40 Depreciation?
Let’s start with the legalities. The Income Tax Assessment Act 1997 (Cth) allows property investors (that’s individuals, companies, partnerships, and trusts) to claim depreciation in two key areas … Divisions 43 and 40.
Division 43 applies to Capital Works, basically the structural components of your building … like the walls, roofs, bricks and earthworks.
However, Division 40, the focus of this page, addresses your property’s Plant & Equipment … that’s the assets which you can easily remove from your residential building or commercial property.
And here’s the important factor … you may get tax deductions on these assets’ wear and tear. The items that make your property liveable and/or usable … e.g. air conditioning, kitchen appliances, and downlights … decline in value over the years. And, by calculating this drop, you can claim it as a non-cash deduction against your income.
At Washington Brown, we painstakingly identify and calculate the depreciation of every single one of your permissible assets … ensuring you gain the full deduction entitlements, while always staying compliant with the strict ATO regulations.
Assets Allowed Under Div 40 – According to the ATO
If you’re not already claiming depreciation on your property’s Plant & Equipment … you’re literally giving unnecessary money in tax every year to the ATO.
But, although what’s permissible to be included on your depreciation schedule for Division 40 is broad … their specific eligibility can depend on whether your building is residential or commercial, brand new or second-hand, the type of assets, and in what context that asset is used.
At Washington Brown, our depreciation experts have exhaustive knowledge of what is allowable in your circumstances … therefore ensuring nothing is overlooked, and every possible allowance is claimed in your compliant depreciation schedule.
Permissible Plant & Equipment Deduction Examples
Residential Property (Brand New)
- Air conditioning
- Carpets
- Garden sheds
- Blinds
- Hot water heaters
- Solar panels
- Barbecues
- Kitchen appliances
- Ceiling fans
- Light fittings
- Burglar alarms
- Electric garage doors
- Televisions
- Swimming pool filtration systems
- More Plant & Equipment deductions…
Commercial Property (Both Brand New and Second-Hand)
- Desks, shelves, and chairs
- Manufacturing equipment
- Carpet, floating timber and vinyl flooring
- Curtains and blinds
- Air conditioning equipment
- Automatic roller door motors
- Warehouse hoists
- Point-of-sale machines
- Fire hose reels, extinguishers, alarms and pumps
- Security systems
- Door closers
- Coffee machines
How Plant & Equipment Allowances Under Division 40 Are Calculated
One day, a person in the ATO office was issued the thrilling job of giving every single Division 40 asset an effective life … and then wrote a comprehensive report listing them all.
This ‘effective life’ simply means how long they thought the item should last … before it wears out and becomes unusable. And, this is the cornerstone of calculating your allowance.
So, let’s assume you bought an oven for your rental property, and the ATO decided it should last 12 years. This means you can claim, as a deduction, most of its initial value over the following 12 years. How much is claimed depends on the method used:
Depreciation Methods
Diminishing Value
Basically, with diminishing value, you claim higher deductions in the first few years … as assets always lose the most value in those early days, like when you drive a new car out of the dealership.
Basic Example
You bought and installed an air conditioner for $2000, the ATO decided its effective life was ten years.
Year 1 – You might claim $400
Year 2 – You might claim $320
Year 3 – You might claim $256
Etc
This system could be perfect for investors who want to quickly boost their cash flow.
Prime Cost Method
Sometimes called the straight-line method, prime cost evenly distributes the item’s depreciation over the entirety of its effective life. Meaning that every year, you’re claiming the same amount.
Basic Example
You buy another air conditioner for $2000, and the ATO still says its effective life is ten years.
Year 1 – You claim $200
Year 2 – You claim $200
Year 3 – You claim $200
Etc
This system might suit investors who want steady income tax deductions over time.
Low-Value Pooling
If you have a lot of assets, but they have individual values less than $1,000, you can throw them all into a single pool. Then, you’re allowed to claim at an accelerated rate … currently 18.75 percent in year one, then 37.5 percent afterwards … on the total pool value.
Basic Example
You buy the following for your residential property:
|
Microwave oven |
$500 |
|
Curtains |
$750 |
|
Heater |
$425 |
|
Total |
$1675 |
As each item is less than $1000, they’re grouped in the low-value pool. In year one, you can claim 18.75 percent of the total value of $1675.
| Year | Calculation | Depreciation Rate | Claim Amount | Remaining Pool Value |
|---|---|---|---|---|
| Year 1 | $1,675 × 18.75% | 18.75% | $314.06 | $1,675 – $314.06 = $1,360.94 |
| Year 2 | $1,360.94 × 37.5% | 37.5% | $510.35 | $1,360.94 – $510.35 = $850.59 |
| Year 3 | $850.59 × 37.5% | 37.5% | $318.97 | $850.59 – $318.97 = $531.62 |
2017 – The Year Division 40 Dramatically Changed
In 2017, Australia faced major shifts …from Cyclone Debbie to the national vote for marriage equality. But for property investors, the most disruptive change was the Treasury Laws Amendment (Housing Tax Integrity) Act.
This major law change significantly affected what individual investors could claim through Division 40 for residential properties bought on or after 10 May 2017 … which still applies to this day.
How It Changed Depreciation
- You can no longer claim on Plant & Equipment that’s already in a second-hand property when you buy it.
- You can still claim depreciation on any new Plant & Equipment you buy and install after you purchase the property.
- These rules apply to second-hand residential properties, not commercial.
- If you buy a previously-owned commercial premises, you can still claim depreciation on the existing Plant & Equipment.
- The rules for Division 43 (Capital Works) remain unaffected.
However, these restrictions don’t apply if the property is owned by a corporate tax entity … these ownership structures can still claim depreciation on existing Plant & Equipment, even in second-hand residential properties. Unfortunately, SMSFs and family trusts have not been included in the ATO’s definition of corporate tax entities.
Working through these regulations, and knowing exactly what you need to include in your depreciation schedule, is complex. At Washington Brown, our Division 40 specialists ensure you’re not only compliant with the 2017 amendments … but also take advantage of every eligible deduction.
Real World Scenarios for Division 40 Claims
Laws, percentages, depreciation methods, and deduction allowances … all critically important, but probably far removed from your everyday property concerns. So, what does Division 40 actually look like for you in the real world?
Common Division 40 Scenarios
- You buy a shiny, brand-new apartment – all the new Plant & Equipment initially installed by the builder, like ovens and air con, are claimable.
- You installed a new heater in your residential rental – even if the property was owned by someone else before, you can depreciate the cost of this appliance under Division 40.
- You buy a second-hand residential property with used appliances – while you can’t claim for second-hand assets if the property was bought after May 2017, you can claim for anything new you put in.
- You own a commercial warehouse with a fit-out – shelving, HVAC, lighting, and industrial equipment can all be depreciated under Division 40, and the 2017 changes don’t apply to you.
- You’ve just renovated your investment property – if you fitted new Plant & Equipment during the refurb, like a new hot water system, you can claim.
- Your property is owned by a company or trust – Division 40 applies to everyone who pays tax, not just individuals.
- You have a mixed-use property – if your building has residential and commercial spaces, Division 40 claims are generally allocated and calculated for each portion of the property in accordance with how it’s used.
Avoid Costly Mistakes – Use a Depreciation Specialist
Although Division 40 allowances are available to you as a property investor, it’s not generally something you should do yourself … unless you’re completely on top of current legislation, regulations, and requirements.
Too many individuals go down the DIY route, only to break an ATO rule, make incorrect calculations, or forget about important eligible assets. This can mean missing out on thousands of dollars’ worth of deductions.
An Expert Such As Washington Brown Helps You Avoid:
- Underclaiming – with so many eligible items, it’s so easy to miss an eligible asset, especially something less obvious like door closers, artificial grass, or a fire hose reel.
- Breaking legal requirements – the rules can change at any time, and keeping on top of new and complex guidelines is a full-time job. Get it wrong, and you’re either missing out on deductions or overclaiming.
- Misidentifying assets – by thinking Capital Works (Division 43) are Plant & Equipment (Div 40) … or vice versa. For example, incorrectly deciding that a floating floor (Div 40) is part of the building’s structure (Div 43).
- Errors in calculation and required documents – the ATO demands specific evidence, pro-rata calculations, and depreciation methods. Mess it up, and you’re looking at an invalid claim.
- Time wastage and stress – identifying, valuing, and calculating the depreciation for every single asset in your building takes an immense amount of time and gives you unnecessary worry.
Are You Ready to Claim Your Entitlements?
Every tax year, countless Australian property investors are missing out on thousands upon thousands in vital tax deductions. By overlooking their depreciating Plant & Equipment assets … like carpet and air con … they’re paying unnecessary tax to the ATO.
With Washington Brown, you transform missed opportunities into real money in your pocket … with a fully compliant, ATO-recognised depreciation schedule.
Here’s How We Help Make the Most of Division 40:
✔ Identifying every Div 40 eligible asset – making sure no assets are omitted to ensure your maximum allowance.
✔ Applying the correct ATO rules – backed by years of experience, we help you and your accountant correctly use the ever-changing legislation.
✔ Using the most suitable depreciation method – where appropriate, using tools such as low-value pooling to help you boost cash flow rapidly.
✔ Delivering an audit-proof schedule – providing completely compliant, ATO-recognised reports to confidently claim your deductions year after year.
✔ Clearing up ambiguities – such as multi-use properties, new renovations, and second-hand residential purchases after 2017.
✔ Extensive experience – after preparing over 315,000 accepted depreciation schedules, we understand all property types and their depreciation opportunities.
✔ Double Your Fee guarantee – we’re so confident that we can find substantial discounts, that if you don’t receive twice our fee in deductions, your depreciation report is FREE!