Australian property investors can claim two separate depreciation deductions each year — Division 40 for plant & equipment, and Division 43 for capital works. Together they typically save $5,000–$15,000+ per year for the first decade of ownership of a newer investment property, but most investors leave at least 20% of the available claim on the table because the rules around second-hand items, the diminishing-value vs prime-cost choice, and timing of improvements are easy to get wrong.
Disclaimer
This guide is general information for AU investors, not personal tax advice. The numbers vary materially by property type, age and your individual marginal rate. Verify specifics with your accountant or the relevant ATO ruling before relying on any single figure.
What property depreciation actually is
Definition
Property depreciation (Australian tax)
Depreciation is a non-cash deduction that lets investors write off the cost of an investment property's structural elements (Division 43) and removable plant & equipment (Division 40) over time. It reduces your taxable income each year without you spending another dollar.
Depreciation matters because it's the largest deduction most property investors never directly pay for. Interest you pay; rates you pay; insurance you pay. Depreciation just happens — the building ages, the dishwasher ages — and the tax code lets you recognise that ageing as an expense.
Two separate sections of the Income Tax Assessment Act apply. They are confusingly numbered:
- Division 40 — plant & equipment. Removable items: appliances, carpets, blinds, hot-water systems, air-conditioners, smoke alarms, etc.
- Division 43 — capital works. The building itself plus structural improvements: walls, roof, plumbing, fences, driveways, swimming pools.
Division 40 vs Division 43 — the differences that matter
Division 40 — plant & equipment
Each Div 40 asset has an "effective life" published by the ATO (Taxation Ruling TR 2022/1, updated annually). A dishwasher's effective life is 10 years; carpets 8 years; a split-system air-conditioner 10 years. You depreciate against that life using either the prime-cost or diminishing-value method.
Since the 2017 federal budget, Div 40 claims on second-hand assets are restricted: you can only claim Div 40 on items you bought new yourself, OR that came new with a brand-new build. If you bought an existing investment property in 2020 with a dishwasher already installed, you cannot claim Div 40 on that dishwasher — only on items you've installed yourself since purchase.
Watch out
The 2017 rule is the single biggest depreciation trap for new investors. People assume their accountant or the previous owner's depreciation schedule still applies. It usually doesn't — for a second-hand property, you start from zero on Div 40 and only Div 43 carries over.
Division 43 — capital works
Div 43 covers the structural building. The rate is fixed: 2.5% per year of the original construction cost, claimed every year for 40 years from completion (so a building completed in 2010 has 24 years of Div 43 remaining as of 2026).
Crucially, Div 43 runs with the building, not the owner. If you buy a second-hand property built in 2005, you inherit the remaining Div 43 entitlement — at 2.5% per year of the original construction cost (not what you paid for the property). This is why the quantity surveyor's report is valuable: they certify the construction cost using current-day rebuild estimates.
When you need a quantity surveyor
You need a quantity surveyor (QS) report in three scenarios:
- Property built after 1987 where you don't have original construction invoices. The ATO accepts a QS's professional estimate as evidence of construction cost.
- You've added significant structural improvements (renovation, extension, new patio). A QS itemises the new work for Div 43 + identifies any Div 40 within it.
- You want to maximise Div 40 from a brand-new property. The QS itemises every plant-equipment asset at acquisition rather than you guessing at $2,400 of "appliances".
A typical QS report costs $600–$900 and is itself tax-deductible. For most investors, the first-year deduction lift pays for the report 5-10 times over.
Prime cost vs diminishing value
For Div 40 items, you choose one method per asset:
- Prime cost (straight-line): equal deduction each year over the asset's effective life. A $3,000 dishwasher with a 10-year life = $300/year for 10 years.
- Diminishing value: ATO's formula applies 2× the prime-cost rate to the asset's remaining value. The same $3,000 dishwasher = $600 year 1, $480 year 2, $384 year 3, etc.
Note
Rule of thumb: diminishing value is better if you'll hold the asset less than 7-10 years or want maximum deduction front-loaded. Prime cost is better if you want predictable, even deductions or expect to hold long-term. Once chosen for an asset, you cannot switch.
Div 43 is always prime-cost (2.5% per year flat) — no choice involved.
The CGT trap nobody talks about
Here's the part most depreciation guides skip. Division 43 claims reduce your CGT cost base when you sell. If you've claimed $80,000 of Div 43 over a decade, your taxable capital gain on sale is $80,000 higher than it would have been if you'd never claimed it.
That doesn't mean don't claim — the time value of money means a dollar deducted in year 1 is worth far more than a dollar of CGT in year 12, especially after the 50% CGT discount kicks in. But the trade-off should be visible. A 32.5% taxpayer who claims $80k of Div 43 saves $26k in income tax over the years; the eventual CGT impact at a 50%-discounted 37% rate is about $14.8k. Net win: $11.2k, plus the time-value gap.
Div 40 is different — most Div 40 items are written off below their cost-base impact, so the net CGT addback is usually negligible.
The five mistakes that cost investors money
- No QS report on a post-1987 property they didn't build. Without it, the Div 43 claim is informally estimated or skipped entirely.
- Treating Div 40 like Div 43 on a second-hand property. Post-2017 rules disallow most second-hand Div 40 — investors discover this when the ATO disallows the claim.
- Picking prime cost when diminishing value would have been worth $4-6k more over the first 5 years. Default settings in most accounting software favour prime cost.
- Forgetting to depreciate post-purchase improvements. Adding a $12k air-conditioner is a Div 40 asset starting from install date. Most accountants need to be told about it.
- Stopping claims when the property is vacant between tenancies. If the property is available for rent, depreciation continues — only when it is genuinely off-market for private use does the claim pause.
How PlotBot handles this
PlotBot's depreciation engine (built into every plan) tracks Div 40 assets and the Div 43 building cost per property. When you upload an invoice for a new dishwasher, the AI identifies it as Div 40 plant & equipment, asks which property, applies the effective life from the ATO ruling, and rolls the schedule forward each financial year automatically. Annual "Claim FY{YY}" reminders fire on the first of July so you don't miss the lodgement window.
For Div 43, PlotBot accepts the QS report data (construction cost + completion date) once per property and computes the 2.5% per year for the remaining 40 years, ready for your accountant or for direct export to Xero.
See the Xero integration page for how the depreciation deductions flow into your Bills, or jump into the 14-day free trial with no credit card.