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Depreciation is the one investment-property deduction that costs you nothing out of pocket each year, and it splits into two very different categories. Division 43 capital works covers the building's structure — walls, roof, concrete, tiling, built-in cupboards — and is claimed at 2.5% per year over 40 years of the original construction cost where residential construction started after 15 September 1987 (the 40 years run from completion; earlier construction dates attract different rates or none). Division 40 plant and equipment covers removable assets — ovens, dishwashers, carpets, blinds, air conditioners, hot water systems — each with its own effective life.
Since 9 May 2017, investors who buy an established residential property generally cannot claim Division 40 depreciation on second-hand plant and equipment that came with the property. You can still claim Division 43 capital works on the structure, and you can still claim Division 40 on assets you buy new yourself. This is why brand-new properties produce far larger depreciation claims than established ones — and why a depreciation estimate that ignores the acquisition date can overstate the deduction badly.
On a home with $300,000 of original construction cost, Division 43 gives $7,500 a year for 40 years from completion. If you also installed $15,000 of new appliances and floor coverings, those depreciate separately over their effective lives, often front-loaded under the diminishing value method. For a taxpayer on a 32% marginal rate, that $7,500 structural claim alone is worth about $2,400 a year in reduced tax.
For Division 40 assets you choose between diminishing value (larger deductions early, tapering off) and prime cost (an even amount each year). Diminishing value suits investors wanting cash flow now; prime cost suits those wanting a steadier long-run deduction. The choice is made per asset and can't be switched later.
Do I need a quantity surveyor's report? For anything but the simplest case, yes — the ATO accepts construction-cost estimates from a qualified quantity surveyor, and the fee is itself deductible.
Does depreciation affect capital gains tax? Yes. Division 43 claims reduce your cost base, which increases the taxable gain on sale — so part of the benefit is deferred rather than free.
Can I backdate missed claims? You can generally amend recent returns to include missed depreciation, subject to the ATO's amendment time limits.
This calculator uses current published rates from Australian government and regulator sources. The result is an estimate for general guidance — it does not constitute personal financial advice. For decisions about your circumstances, consult a registered financial adviser, tax agent, or other professional. See editorial standards for how DecisionLab sources and updates its calculator data.