Capital Works Deductions (Division 43)
Deductions on Capital Works
You can claim Division 43 deductions for buildings, extensions, and structural improvements that are permanently fixed to the property. These include original construction as well as eligible renovations and improvements made after specific dates outlined by the ATO. Unlike Division 40 (which applies to plant and equipment), Division 43 capital works deductions are claimed at a set rate over a maximum period of 40 years.
Key points about Division 43 deductions:
- Division 43 allows deductions for structural elements like foundations and roofs in residential and commercial properties.
- ATO sets depreciation at 2.5% (40 years) or 4% (25 years) based on property type and construction date.
- Properties or renovations post-15 September 1987 qualify; older ones may if within claim period.
- Claim Division 43 and Division 40 deductions using a Quantity Surveyor’s depreciation schedule.
Eligible Capital Works for Residential Properties
Common residential Division 43 items eligible for capital works depreciation:
Eligible Capital Works for Commercial Properties
Common commercial Division 43 items eligible for capital works depreciation:
Capital Works Depreciation Rates
When it comes to capital works deductions (Division 43), how much you can claim and for how many years depends on three things:
- When construction started: this determines the depreciation rate (2.5% or 4%) based on ATO rules.
- When construction was completed: this is when your 25- or 40-year claim period officially begins.
- What type of building or improvement it is: residential, commercial, manufacturing, or structural improvements.
The Australian Taxation Office (ATO) sets clear depreciation rates for different types of properties and structural improvements. You’ll either claim 2.5% per year (over 40 years) or 4% per year (over 25 years), depending on your property’s construction timeline and usage.
Here’s a simplified breakdown to help you understand which rate applies to your property:
| Construction Date | Hotels, Motels & Guest Houses | Manufacturing | Other Commercial (e.g., Offices, Shops) | Residential Properties | Structural Improvements |
|---|---|---|---|---|---|
| Current – 27 Feb 1992 | 4% | 4% | 2.5% | 2.5% | 2.5% |
| 26 Feb 1992 – 16 Sept 1987 | 2.5% | 2.5% | 2.5% | 2.5% | |
| 15 Sept 1987 – 18 July 1985 | 4% | 4% | 4% | 4% | |
| 17 July 1985 – 22 Aug 1984 | 4% | 4% | 4% | ||
| 21 Aug 1984 – 20 July 1982 | 2.5% | 2.5% | 2.5% | ||
| 19 July 1982 – 21 Aug 1979 | 2.5% |
What Does This Mean for You?
- 2.5% Rate = 40 Years of Claims
Most residential properties built after 16 September 1987 fall under this rate. You can claim 2.5% of the construction cost per year, for up to 40 years starting from the date construction was completed.
- 4% Rate = 25 Years of Claims
Older commercial properties, manufacturing facilities, and certain short-term accommodation buildings (like motels and hotels) built in specific periods qualify for a faster 4% depreciation rate — but only for 25 years from the completion date.
- Structural Improvements
If you’ve added items like a carport, retaining wall, or new deck after 27 February 1992, you can claim these at 2.5% per year for 40 years from when the work was finished.
Division 43 Frequently Asked Questions (FAQs)
What is Division 43 depreciation?
Division 43 depreciation refers to claiming deductions on the building’s structure and fixed assets, based on the construction cost, over a maximum of 40 years.
Can I claim both Division 40 and Division 43 deductions?
Yes. Division 40 covers removable assets (plant and equipment), while Division 43 applies to structural elements.
Do renovations qualify for Division 43?
Renovations such as extensions, permanent structural improvements, and capital upgrades are claimable under Division 43, provided they meet ATO eligibility dates.
What is the difference between Division 40 and Division 43?
Division 40 covers plant and equipment (removable or mechanical items), while Division 43 refers to capital works deductions for structural elements like walls, roofs, and built-in fixtures. Read this detailed post on div 40 vs div 43.
How do I know if my property qualifies for Division 43 deductions?
Eligibility depends on when the property or improvements were constructed. A tax depreciation schedule prepared by a Quantity Surveyor will identify claimable capital works.
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