Glossary · Australian property
Depreciation recapture.
When you sell an investment property, the Division 43 capital-works deductions you claimed during the hold reduce your CGT cost base, increasing the taxable capital gain. Effectively, the ATO 'recaptures' part of the prior tax benefit at sale.
Mechanic: ITAA 1997 s110-45(2) requires the cost base (used to compute capital gain on sale) to be reduced by the amount of Division 43 capital-works deductions claimed during ownership. Division 40 plant-and-equipment depreciation does NOT recapture (different code path: Div 40 disposal triggers a separate balancing-adjustment event under s40-285, not a CGT cost-base reduction).
Numeric effect: claim $20K of Div 43 over 8 years = $20K reduction in cost base at sale = $20K higher capital gain = effective recapture of ~$2-5K of the original tax benefit (depending on marginal rate and 50% discount). The compound benefit over a 15-year hold and 50% CGT discount means recapture rarely outweighs the original deduction, but it does narrow the after-tax win.
Planning: most QS reports separate Div 40 and Div 43 lines so investors and accountants can track the recapture-eligible component. The negative-gearing calculator and CGT calculator on this site auto-link Div 43 deductions claimed to cost base reduction at sale, so the warning surfaces during NG runs.
Worked example
Bought $700K in 2018. Claimed $25K Div 43 over 7 years. Sold 2025 at $950K. Cost base = $700K + $30K acquisition costs − $25K Div 43 = $705K. Capital gain = $950K − $705K = $245K. Without recapture the gain would have been $220K. Recapture cost ~$25K × 50% discount × marginal rate ≈ $5K extra CGT.
Source
ITAA 1997 s110-45(2) (cost base reduction); s40-285 (Div 40 disposal balancing).
Related terms
Open the playbook — 11 chapters end-to-end, every threshold cited.