What Dental Practices Can Register as Fixed Assets and How Long to Depreciate Them

Why Dental Practices Get Depreciation Wrong

A dental practice is one of the most asset-intensive small businesses in Victoria. A well-equipped surgery can hold $300,000 to $600,000 of capital equipment, fit-out costs and specialist technology. Despite this, many practices either overstate depreciation by treating the entire fit-out as plant and equipment, or understate it by not registering assets formally and relying on the accountant to calculate depreciation from invoices at year end.

The correct approach requires a working asset register in Xero that tracks each asset, its purchase price, its ATO-assigned effective life, and the depreciation method chosen. When the asset register is maintained throughout the year, the figures are available for forecasting, insurance valuations and loan applications, not just for tax purposes.

Getting this right is part of what True Tally does for dental practice clients. Understanding your numbers at an asset level also feeds into cash flow forecasting: knowing when major equipment like a dental chair or CBCT unit will reach the end of its depreciated life gives a practice owner visibility over future capital expenditure requirements.

Division 40 vs Division 43: The Key Distinction

Australian tax law draws a clear distinction between two categories of capital deduction:

• Division 40 covers depreciating assets, which are items of plant and equipment that can be identified, separately valued, and in most cases removed from the premises without damaging the structure. These assets decline in value over time due to use and wear.
• Division 43 covers capital works, which includes structural improvements, fit-out elements that are fixed to the building, and work that enhances the building itself rather than supplying removable plant. Capital works are written off at 2.5% per annum over 40 years (or 4% for certain construction types).

For a dental practice in leased rooms, the fit-out cost will span both categories. The dental chairs, compressor, autoclave, X-ray units and intraoral cameras are all Division 40 assets. The plumbing, electrical work, fixed cabinetry, floor screeding and ceiling work are Division 43 capital works. A proper depreciation schedule produced by your accountant at the time of fit-out will separate these two categories and assign the correct rate to each.

ATO Effective Life for Common Dental Equipment

The ATO publishes a taxation ruling on the effective life of depreciating assets (currently TR 2023/1) which sets out the expected useful life of assets by industry and type. For dental practices, the following effective lives apply. Where the ATO ruling does not specify an asset type precisely, the general category is used.

These effective lives are based on the ATO's TR 2023/1 Income Tax: Effective Life of Depreciating Assets. Where a specific dental asset is not listed, the ATO allows taxpayers to self-assess effective life based on the expected period of use, subject to that self-assessment being supportable. Your accountant or registered tax agent should sign off on any self-assessed effective life.

Instant Asset Write-Off for Dental Practices

From 1 July 2023, the temporary full expensing rules that applied during COVID ended and the instant asset write-off reverted to its pre-pandemic settings. For the 2023-24 and 2024-25 financial years, a small business entity (aggregated annual turnover below $10 million) can immediately deduct the cost of an eligible depreciating asset if its cost is less than $20,000.

Each asset is tested individually against the threshold. A dental practice purchasing six handpieces at $700 each can write off all six in the year of purchase because each individual item is below $20,000. A CBCT scanner purchased for $140,000 cannot use the IAWO and must be depreciated at the 20% DV rate over its effective life.

The threshold and eligibility conditions for the instant asset write-off can change with each Federal Budget. Your registered tax agent should confirm the rules that apply in the year of purchase before a practice makes large capital decisions based on expected write-off treatment.

Leasehold Improvements and the Fit-Out Question

Most Victorian dental practices operate from leased premises, which creates a specific complication with fit-out costs. When a practice owner spends $200,000 fitting out a surgery, that investment spans both Division 40 and Division 43, and correctly separating the two categories requires a quantity surveyor's depreciation schedule or a detailed breakdown from the builder at the time of construction.

The elements typically classified as Division 43 capital works include: structural wall alterations, floor finishes that are fixed and not removable, plumbing and pipework installed in walls or floors, electrical conduit and switchboards, fixed ceiling systems and fire services. Elements classified as Division 40 assets include: removable cabinetry (even if custom-built, if it can be removed without structural damage), dental chairs and units, lighting fixtures (in many cases), air conditioning units, and all plant and equipment.

If a dental practice operates for fewer than 40 years (or the lease has fewer than 40 years remaining), the Division 43 rate of 2.5% will not fully recover the fit-out cost over the lease period. This is particularly relevant for practices approaching a lease end or planning to relocate, where the unrecovered cost is a balancing deduction upon cessation of the lease.

Setting Up a Dental Practice Asset Register in Xero

A well-maintained asset register in Xero is the foundation of correct depreciation claims and accurate financial reporting for a dental practice. Each asset in Xero requires: the asset name and description, the purchase date, the purchase price (ex-GST for GST-registered practices), the asset type (which controls the depreciation rate), and the serial number or identifier for insurance and warranty tracking.

When an asset is purchased via finance (chattel mortgage or hire purchase), the full purchase price is recorded as the asset cost, and the loan liability is recorded separately. The asset is owned by the practice from day one and depreciated in full, even though loan repayments are still being made. A finance lease (where the finance company owns the asset) is treated differently under AASB 16 and may require different accounting treatment.

At the end of each financial year, Xero's depreciation run posts the depreciation charge to the profit and loss (depreciation expense) and reduces the asset's book value in the balance sheet. This produces the written-down value (WDV) for each asset, which the accountant uses when preparing the business tax return.

For dental practices seeking cleaner reporting, True Tally can build the asset register from invoices, reconcile existing assets against the insurance schedule, and produce a depreciation schedule that matches what your accountant expects to see. This is part of our broader approach to helping practices understand their numbers year-round, not just at tax time.

Finance and Depreciation: What Method Matters

When a dental practice uses a chattel mortgage to fund a major asset like a dental chair or OPG unit, the interest charges are deductible separately from the depreciation on the asset itself. The practice claims depreciation on the full asset value and separately deducts the interest component of each repayment. The principal repayments are not a tax deduction, because the cost of the asset is already being recovered through depreciation.

This is a common point of confusion for practice owners who do a quick calculation and find that their total deductions (depreciation plus interest) exceed what they thought the deduction should be. The two deductions relate to two different things: the cost of using the asset over its life (depreciation) and the cost of borrowing money to buy it (interest).

For finance leases, where the finance company owns the asset, the treatment is different again. Under AASB 16, finance leases are recognised as a right-of-use asset and a corresponding lease liability on the balance sheet, with the lease payments split between depreciation and interest components. This is an area where the bookkeeping and tax treatment can diverge and where close coordination between the bookkeeper and accountant is essential.

Key Dental Bookkeeping Resources

• ATO TR 2023/1: Effective Life of Depreciating Assets — the authoritative reference for all effective life determinations
• ATO Depreciation and Capital Allowances Tool — calculates deductions for a specific asset
• CPA Australia: Tax and Compliance for Business — guidance on capital allowances and small business concessions
• Australian Dental Association — professional body for the dental profession in Australia

Watch: Dental Practice Asset Depreciation Explained

Frequently Asked Questions

What is the ATO effective life of a dental chair?

The ATO sets the effective life of a dental chair (complete unit including delivery system) at 10 years, producing a 20% diminishing value rate or a 10% prime cost rate. The method chosen must be applied consistently to each asset for the life of that asset.

Can a dental practice claim the instant asset write-off on equipment?

Yes, provided the practice qualifies as a small business entity (aggregated turnover below $10 million) and the individual asset costs less than $20,000. Each asset is tested individually against the threshold, so a practice can claim the write-off on multiple individual items even in the same year, as long as no single item exceeds the threshold.

How is a dental fit-out depreciated?

Structural fit-out work (plumbing, fixed electrical, flooring, ceilings) is a Division 43 capital works deduction at 2.5% per annum over 40 years. Removable plant and equipment installed in the fit-out (chairs, equipment, removable cabinetry) is depreciated as Division 40 assets at the relevant effective life rate.

How do I record dental assets in Xero?

Use Xero's fixed asset register under the Accounting menu. Each asset requires a name, purchase date, purchase price (ex-GST), asset type (determines rate), and an identifier. Run depreciation at year end (or monthly) to post the charge to the profit and loss and reduce the balance sheet carrying value.