Tax tips - plant and equipment depreciation deductions
When your specialist quantity surveyor tells you that you can claim depreciation on almost anything, they mean it. You can claim depreciation on your investment property’s walls, furniture to its mailbox and the kitchen sink. One of the most versatile areas of depreciation is plant and equipment deductions.
Before we dive into the details of plant and equipment, what is property depreciation?
Property depreciation is the natural wear and tear of a building and its assets over time. There are two parts of a depreciation claim – the structural component (capital works) and the easily removable or mechanical assets (plant and equipment).
What are plant and equipment depreciation deductions?
As mentioned, plant and equipment assets are easily removable or mechanical in nature. Some common examples that BMT Tax Depreciation find include:
- floor coverings such as carpet and vinyl
- hot water systems
- hot water systems, and
- smoke alarms.
How can you claim plant and equipment?
Plant and equipment deductions are claimed differently to capital works. Capital works are typically depreciated at 2.5 per cent over 40 years, while each plant and equipment asset is depreciated across its effective life using either the diminishing value or prime cost method
When using the diminishing value method, the deduction is calculated as a percentage of the asset’s depreciable balance. This means the deductions are higher in the earlier years and diminish over time.
Alternatively, under the prime cost method, the deduction for each year is calculated as a percentage of the cost. If this method is used the deductions are not as high in early years and are spread out over time showing a more even claim per financial year.
Depreciation for plant and equipment assets can be accelerated using the low-value pool. Only assets that cost or are valued less than $1,000 can be placed into the pool. Once allocated, they depreciate at an accelerated rate of 18.75 per cent in the first year, and 37.5 per cent in following years.
Are plant and equipment deductions available for every property?
Legislation changes introduced in 2017 affected residential property investors’ eligibility to claim plant and equipment deductions.
Under the changes, owners of second-hand investment properties (where contracts where exchanged after 9 May 2017) can’t claim depreciation on previously used plant and equipment assets.
This means plant and equipment deductions are only available for brand-new assets, or assets in new properties.
What to do if you’re not eligible for plant and equipment deductions
If you’re a second-hand investment property owner and can’t claim previously used plant and equipment items, you shouldn’t rule depreciation out.
You can still claim depreciation on all qualifying capital works, which on average make up 85 - 90 per cent of a total depreciation claim. You can also claim depreciation on any new plant and equipment assets that you purchase directly for the property.