Depreciation – ‘Division 40 – Plant and Equipment’ Vs ‘Division 43 – Capital Works’

Division 40 – Plant and equipment refer to items that are fixtures and fittings, usually known as easily removable assets.

Any items that cost below the instant asset write off / full expensing provisions and that do not form part of a group, can be immediately written off.

All other Plant and Equipment above the instant asset write off / full expensing provisions will be depreciated over its deemed effective life that is measured in years which is set out by the ATO.

This can be found within the document ‘Taxation Ruling TR 2019/5 – Income tax: effective life of depreciation assets’.

Some examples of Div 40 items are:

  • Air conditioning unit
  • Blinds
  • Carpet
  • Light shades
  • Oven
  • Rangehood
  • Ventilation fan

Division 43 – Capital works refer to the depreciation of the structure of the building, usually objects that are non-removable.

Capital works used to produce income, including buildings and structural improvements, are written off over a longer period than other depreciating assets.

Note that the land itself can’t be written off and its cost isn’t deductible.

The capital works deduction is available for:

  • buildings or extensions, alterations or improvements to a building
  • alterations and improvements to a leased building, including shop fitouts and leasehold improvements
  • structural improvements such as sealed driveways, fences and retaining walls
  • earthworks for environmental protection, such as embankments.

Some examples are:

  • Driveways
  • Fencing
  • Garage
  • Roofing
  • Tiling
  • Walls

If it isn’t possible to determine the actual construction costs, you can get an estimate from a quantity surveyor or other independent qualified person. You can claim a deduction for the full cost of the estimate in the year it is incurred. Deduction rates of 2.5% or 4.0% apply, depending on the date on which construction began, the type of capital works, and how they’re used.

Another way to help understand if an item is classed as Div 40 or Div 43 is to ask yourself

“when I sell my business or move to another premise, will I take the item with me?”

Generally, if the answer is No than the item is most likely a Div 43 item.

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