Division 40 and Division 43: plant versus capital works

Division 43 of the Income Tax Assessment Act 1997 covers capital works: the structure of the building (slab, frame, roof, walls, windows, doors, built-in cupboards, tiling, plumbing and wiring) and structural improvements outside it such as driveways, paths, fences, retaining walls, sheds and pools.

Division 40 covers depreciating assets, often called plant and equipment: items that can be removed without damaging the building, or that are mechanical. Carpet, floating floors, blinds and curtains, hot water systems, air conditioning units, ovens, cooktops, rangehoods, dishwashers, exhaust fans, smoke alarms and garage door motors are typical.

Capital works for residential construction begun after 15 September 1987 are deducted at 2.5% of the construction cost each year, for 40 years from completion (4% for construction begun between 18 July 1985 and 15 September 1987). The cost is what it cost to build at the time, not today's value, and a buyer of an established property claims what remains of the 40 years: for a house built in 2012, counted from 30 June 2012 as its year page counts it, 26 income years from 2026–27.

Plant is deducted over each item's effective life under either the diminishing value or the prime cost method. Items of $300 or less can be written off immediately, and items under $1,000 can go into a low-value pool.

Plant generally depreciates much faster than the building, so placing an item correctly changes the deductions in the early years. And since 2017, plant that came with a second-hand residential property, or that was used while the property was the owner's home, is generally not deductible for individuals, while capital works still are. A schedule keeps the two apart for exactly these reasons.

Our dwelling pages set the two side by side for one kind of home in one state: the page on a house in Queensland lists what its capital works cover and prices the plant such a house typically has. In a strata building the split runs through the common property as well: a lift is plant and its shaft is capital works, each owner claiming a share of both, as the pages on an apartment in Queensland and an apartment in the Northern Territory price them.