Division 40 vs Division 43 is a question that confuses many new investment property owners — yet understanding how depreciation is calculated under each division is fundamental to maximising your annual tax deductions. Australian investment property depreciation operates under two separate categories of the Income Tax Assessment Act 1997 (ITAA 1997), each covering different property components with different calculation methods and eligibility rules.
Division 43 — Capital Works Deduction
Division 43 covers the structural components of the building — bricks, mortar, concrete, roofing, structural walls, fixed plumbing, fixed electrical wiring, doors, windows, built-in wardrobes, and any elements permanently part of the structure. Division 43 uses a flat-rate straight-line depreciation method: 2.5% per year of the original construction cost (for construction commenced after 15 September 1987; 4.0% for eligible buildings commenced 1982-1987). The construction cost is estimated by a quantity surveyor — you do not need the original builder’s invoice. Duration: 40 years from the date of construction. Eligibility: residential properties constructed after 15 September 1987.
Div 43 vs Div 40 — Example Deductions on a New $750K Investment Property
A new $750K investment property can generate $13,000-17,000+ in combined depreciation deductions in Year 1 — worth $5,000-8,000 in reduced tax at a 37-39% marginal rate. A depreciation schedule from a QS ($600-900) has strong ROI for new and near-new investment properties. Second-hand properties purchased after July 2017 cannot claim Div 40 on pre-existing plant and equipment.
Division 40 — Plant and Equipment Depreciation
Division 40 covers removable assets within the property — items that could be removed without damaging the structure. Each is depreciated based on its individual ATO-set effective life. Common Division 40 items: air conditioning units (10-15 years), hot water systems (12 years), carpets/floating floor coverings (10 years), dishwashers/ovens/cooktops (12 years), blinds and curtains (6-10 years), smoke alarms (6 years), garage door openers (10 years). Two methods: Prime cost (straight-line) — asset value divided equally over effective life. Diminishing value (DV) — higher deductions in early years; DV rate = 200% divided by effective life years. A $5,000 air conditioner at DV: Year 1 = $1,000, Year 2 = $800, Year 3 = $640. DV front-loads deductions and is preferred by most investors for cash flow.
The 2017 Budget Change — Second-Hand Property Rule
From 1 July 2017, investors purchasing second-hand (previously used) residential properties can no longer claim Division 40 depreciation on pre-existing plant and equipment assets. If you buy a 10-year-old investment property with an existing hot water system, air conditioner, and carpet — you cannot claim Division 40 on those items. What you can still claim on a second-hand property: (1) Division 43 capital works deduction if built after September 1987 (for the remaining years of the 40-year life); (2) Division 40 on any new plant and equipment items you personally install after purchase. New residential properties purchased from the builder (never previously lived in) are not affected — all plant and equipment is eligible for Division 40.
Why You Need a Quantity Surveyor
A quantity surveyor (QS) with ATO Tax Agent registration produces a tax depreciation schedule that: identifies all depreciable assets, recommends the optimal depreciation method, confirms eligibility under current ATO rules (including the 2017 second-hand property rule), and produces a schedule accepted by your accountant and the ATO. QS fees are typically $600-$900 for a residential schedule — tax deductible in the year of expenditure. Cumulative depreciation benefit over 5-10 years on a new property regularly exceeds $30,000-$50,000 in tax savings, making the QS fee an exceptionally high-return investment.
Division 40 and Division 43 are the two pillars of investment property depreciation in Australia. Understanding which applies to your property, and how the 2017 second-hand property change affects your eligibility, is essential before you commission a depreciation schedule. A quantity surveyor’s report translates the legislation into specific dollar amounts — it is one of the highest-return professional fees you will pay as a property investor.
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General Advice Warning: This article is general in nature and does not constitute personal financial advice. Please consult a licensed financial adviser before making investment decisions.
