Depreciation on Investment Property: Division 40 vs Division 43
How property depreciation works for Australian investors. The two main types, when you need a quantity surveyor, and how depreciation affects both cash flow and CGT at sale.
Depreciation is one of the largest deductions available to Australian property investors — and one of the most overlooked. Done right, it can add several thousand dollars to your annual tax refund.
The two types: Division 40 and Division 43
Division 43 (capital works) covers the structural elements of the building: walls, floors, roof, kitchen cabinetry, bathrooms. For residential properties built after 15 September 1987, capital works depreciate at 2.5% per year over 40 years.
Division 40 (plant & equipment) covers removable assets: dishwashers, ovens, hot water systems, blinds, carpets. These depreciate over their effective life (typically 5–15 years) using either prime cost or diminishing value methods.
The 2017 rule change
Since the 2017 federal budget, investors can only claim Division 40 on items they bought new themselves — second-hand plant & equipment in an established property is not deductible. This change reduced typical depreciation claims for established properties significantly.
Do you need a quantity surveyor?
For any property built after 1985, yes — a tax depreciation schedule from a registered quantity surveyor is essentially mandatory. They cost $500–$1,000 once-off and unlock 40 years of deductions. The ATO doesn't accept estimates from anyone else.
Capital gains impact
When you sell, capital works depreciation claimed reduces your cost base, increasing your capital gain. Plan for this — your accountant should track it across the life of the property.
Add your depreciation figure to the Negative Gearing Calculator to see exactly what it's worth at your marginal rate.