Understanding Plant and Equipment & Capital Works Deductions
A Tax Depreciation Schedule enables an investor to claim loss in property value as a tax deduction. As years go by and buildings get older, their value depreciates, along with the items within it. A Tax Depreciation Schedule estimates the depreciation and associated tax allowances that may be available to the owner under the Tax Assessment Act 1997, Division 40 (plant and equipment) and Division 43 (capital works). Taxes can be frustrating, so let us clear up a few terms and hopefully some confusion.
To understand what you are claiming, you have to understand the different types of assets that are claimable in a Tax Depreciation Schedule. These assets are categorised as either plant and equipment or capital works. Plant and equipment are items that can be easily removed from the property as opposed to items that are permanently fixed. Examples of such items are hot water systems, cooktops, ovens, blinds, and air conditioning.
In addition, to the physical items, costs associated with delivery, installation, and labour associated with bringing the item into full operation are also taken into account. Capital works, on the other hand are structural components, and would include items such as bricks, roof, cupboards, doors and fences. The capital works allowance is a standard percentage rate that varies depending on the date of original construction.
In our next post we’ll be looking into capital loss and equipment depreciation schedules, clarifying how a capital loss can offset a capital gain in the case where a property investor is unable to claim Division 40.