Division 40 and 43 Depreciation for Australian Investment Properties (2026)
Author: Tepuy Solutions | Date: April 2026
Category: Property, Tax
Depreciation is one of the largest non-cash tax deductions available to Australian property investors — yet surveys consistently show that a majority of investment property owners don't claim it, or claim it incorrectly. This article explains both types of depreciation (Division 40 and Division 43), the 2017 rule changes that restricted second-hand property claims, and exactly how much these deductions are worth at each marginal tax rate.
The Two Types of Property Depreciation
Division 43 — Capital Works Allowance (Building)
Division 43 covers the structural elements of a building: the concrete, brickwork, roof, walls, windows, plumbing, and electrical wiring that form the structure itself. Eligible buildings can be depreciated at 2.5% per year for 40 years (buildings constructed after 15 September 1987). This applies to the original construction cost, not the purchase price — so if you buy an established investment property, you need a quantity surveyor's report to estimate the original construction cost.
Who can claim Div 43: Any investor who owns a residential property built after 15 September 1987 (or a commercial building after 20 July 1982). The 2017 rule changes did not affect Division 43 — it remains claimable on second-hand residential properties.
Division 40 — Plant and Equipment (Assets)
Division 40 covers the removable assets inside the property: carpets, blinds, dishwashers, air conditioners, hot water systems, ceiling fans, light fittings, and similar fixtures. These are depreciated over their effective life (set by the ATO), typically between 5 and 15 years depending on the asset.
The 2017 rule change: From 9 May 2017, investors who purchase a second-hand residential property can no longer claim Division 40 depreciation on existing plant and equipment. Only the original owner (typically the developer or builder) can claim Div 40 on existing assets. New residential properties purchased after 9 May 2017 are still fully eligible for Div 40 claims.
What a Depreciation Schedule Actually Looks Like
A quantity surveyor's depreciation schedule for a brand-new $650,000 apartment in Brisbane (2026) might show:
| Year | Division 43 (Building) | Division 40 (Assets) | Total Depreciation Claim |
|---|---|---|---|
| Year 1 | $7,250 | $4,800 | $12,050 |
| Year 2 | $7,250 | $3,900 | $11,150 |
| Year 3 | $7,250 | $3,100 | $10,350 |
| Year 5 | $7,250 | $1,800 | $9,050 |
| Year 10 | $7,250 | $600 | $7,850 |
| Year 20+ | $7,250 | $0 | $7,250 |
The Division 43 deduction is steady at $7,250 (2.5% of an estimated construction cost of $290,000) for 40 years. Division 40 starts high and declines as assets reach the end of their effective life.
The Tax Saving: Every Marginal Bracket
Here's what a $12,000 depreciation claim in Year 1 is actually worth at each tax rate:
| Taxable Income | Marginal Rate (incl. Medicare) | Tax Saving on $12,000 Depreciation | After-Tax Cost of $650k Property (Year 1) |
|---|---|---|---|
| $45k–$120k | 34.5% | $4,140 | Net $7,860 improvement in cashflow |
| $120k–$135k | 39% | $4,680 | Net $7,320 improvement |
| $135k–$190k | 41% | $4,920 | Net $7,080 improvement |
| Over $190k | 47% | $5,640 | Net $6,360 improvement |
Over 10 years, a high-income investor (47%) on a new property might accumulate over $40,000 in depreciation tax savings — effectively a cashflow booster that helps service the mortgage during the early holding period. This is why our Property vs Shares Calculator includes Division 40/43 depreciation in its property cashflow modelling — ignoring it understates the true after-tax return from property for high earners.
The CGT Trap: Depreciation Recapture
There is an important catch. When you sell the property, the Division 43 deductions you've claimed are not recaptured as income (unlike in the US). However, Division 40 plant and equipment that was written down may trigger a balancing adjustment — if you sell the property and the items (dishwasher, carpet etc.) have a lower written-down value than their actual disposal proceeds, you include the difference as income. In most cases this is negligible, but it's worth noting in a depreciation schedule context.
How to Get a Depreciation Schedule
Only a registered tax agent or qualified quantity surveyor can prepare a tax depreciation schedule. The cost is typically $300–$700 for a residential property and is itself tax-deductible. You should get a schedule for any investment property, new or established — even older properties often have unclaimed Division 43 entitlements.
- New property (post-2017): Full Div 43 + full Div 40 — maximum claims available
- Second-hand property (post-2017 purchase): Div 43 only — no Div 40 on existing assets
- Renovations you make yourself: Div 40 on new assets you install, Div 43 on structural capital works
Disclaimer
This article is general information only and does not constitute financial or tax advice. Depreciation eligibility depends on your specific property, construction date, and purchase date. Always consult a registered tax agent or quantity surveyor for a compliant depreciation schedule.