New kitchen cabinetry can indeed be claimed as a tax deduction, but it's crucial to understand how it fits into the broader tax landscape. Under Division 43 of the ITAA 1997, new cabinetry is considered part of the structural improvement to a property, which means it can be depreciated at 2.5% per year over 40 years. This deduction applies to residential investment properties where the cabinetry is part of a capital improvement. If you're replacing cabinetry as part of a renovation, this rule typically applies.
The most common misconception is confusing cabinetry with plant and equipment. While items like ovens and dishwashers fall under Division 40, cabinetry is a structural element. This means it doesn't qualify for immediate write-offs or accelerated depreciation that some plant and equipment items might.
To see how this plays out, consider a 2008-built 3-bedroom house in Melbourne undergoing a kitchen renovation. The investor installs new cabinetry costing $15,000. Under Division 43, they can claim 2.5% per annum, equating to a $375 deduction each year. At a 37% marginal tax rate, this results in a tax saving of approximately $139 annually.
In our experience reviewing thousands of properties across Australia, investors often overlook the long-term benefits of capital works deductions. Many focus on immediate tax savings, neglecting the cumulative effect of claiming capital works over time. Another common oversight is failing to document renovations accurately, which can lead to missed deductions or issues during audits. Ensuring that all costs are well-documented and supported by invoices is critical.
The answer can differ depending on your situation. For properties purchased post-9 May 2017, the rules for claiming plant and equipment have changed significantly, but these do not affect structural improvements like cabinetry. For properties built before 1987, you may not be eligible for Division 43 deductions unless there have been substantial renovations post that date. If the property is held within a Self-Managed Super Fund (SMSF), different tax implications might apply, and it's essential to consult with your accountant.
Given the complexity and the potential for significant tax savings, it's wise to consult both a Chartered Quantity Surveyor and your accountant. A QS can provide a detailed depreciation schedule, ensuring you maximise your claims, while your accountant can integrate this information into your broader tax strategy.