Division 43 vs Division 40. What are they are why are they important?

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Do you want to save on tax? Sure you do, everyone does.

Division 40 and Division 43 are new tax rulings so don’t worry if you have never heard of them. Chances are, most people haven’t. Division 40 and 43 are property depreciation deductions.

Division 40

Division 40 is concerned with the depreciation of plant and equipment. They are related to assets within a property. They include but are not limited to items commonly found such as

  • Ovens
  • Furniture
  • Microwaves
  • Carpets

Division 43

Division 43 on the other hand, is concerned with irremovable assets or structural elements of a building. They include but are not limited to items commonly found such as

  • Air Conditioning Ducting
  • Plaster Ceilings
  • Blinds
  • Walls

Importance

Let’s take an example. Thomas purchased an existing house not long ago as an investment. The property he has been told when he purchased it was 20 years old.

After seeking a tax expert, Thomas identified $17,000 worth of depreciating assets.

Whilst the property was income producing, David claimed a total of $3,300 in deductions in his first financial year.

Thomas decided he wanted to build a new investment property on the same site. In doing so the existing building was demolished and removed from the site. The residual depreciable value of $13,700 became an immediate 100 per cent deduction in the year of demolition.

The key takeaway from the difference between Division 40 and Division 43 is that Division 40 items will depreciate faster. For example, while the building structure (Division 43) can be claimed at a rate of 2.5% over 40 years, carpet (Division 40) in a residential property depreciates at a rate of 20% over 10 years (using the diminishing value method). Hence, the more depreciation; the more tax savings can be made. It is common for people to incorrectly categorise items and therefore it is important to see a tax expert. DKM Accounting and Taxation Services can advise you on how best to go about this while making sure it is ATO compliant and that means big savings for you.

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