Tax Depreciation
Tax depreciation is governed by the Australian Taxation Office (ATO) and follows specific rules and guidelines outlined in the Income Tax Assessment Act 1997. The ATO allows businesses and property owners to claim deductions for the decline in value of their assets through two main methods: depreciation on plant and equipment (Division 40) and depreciation on building structures (Division 43).
Depreciation on Plant and Equipment (Division 40):
- Division 40 covers the depreciation of assets such as machinery, equipment, furniture, fixtures, and fittings used for income-producing purposes.
- Assets are categorized into different asset classes, each with its own depreciation rates and effective life determined by the ATO.
- Option to choose from different depreciation methods, including prime cost (straight-line) and diminishing value (declining balance) methods, to calculate their annual depreciation expenses.
Depreciation on Building Structures (Division 43):
- Division 43 covers the depreciation of capital works, which includes the construction or extension of a building, structural improvements, or other fixed structures.
- The effective life of a building is determined by the type of construction and the date it was first used or installed.
- The depreciation is calculated using a prescribed percentage of the construction cost, spread over the effective life of the building.
- Depreciation on building structures can only be claimed for buildings constructed after July 20, 1982, or for subsequent improvements made after that date.
