Property depreciation — Div 40, Div 43, and the QS report question.

Two distinct regimes.

Both run simultaneously on the same property, off different base values. Div 40 runs off the depreciated value of plant & equipment items. Div 43 runs off the original construction cost of eligible capital works, regardless of how much you paid for the property.

Div 40 in detail — plant & equipment.

Under ITAA 1997 s40-25 / s40-75, you can depreciate the decline in value of identified plant & equipment items used to produce assessable rental income. The effective life of each asset is set by the ATO’s TR 2024/1 table — examples:

• Carpet — 8 years
• Dishwasher — 10 years
• Oven/stove — 12 years
• Reverse cycle air-conditioning (split) — 10 years
• Blinds/curtains — 6 years
• Hot water system (electric) — 12 years
• Range hood — 12 years

Diminishing value method: rate = 200% ÷ effective life. A $2,000 carpet with 8-year life depreciates at 25%/yr in DV — $500 in year 1, $375 in year 2, $281 in year 3, etc. Faster depreciation up front = bigger early-year deductions.

Critical 2017 change: for residential property purchased after 9 May 2017that was not purchased new from a developer, second-hand Div 40 assets are NOT depreciable. You can only depreciate new assets you install yourself after buying. This cut out most of the Div 40 deduction for established residential property purchases — a material policy change most buyers don’t know about.

For brand-new builds purchased from a developer, or commercial property, or property purchased pre-9-May-2017, the full Div 40 schedule still applies.

Div 43 in detail — capital works.

Under ITAA 1997 s43-10, you can deduct 2.5% per year of eligible construction cost for 40 years from construction completion. Covers:

• Structural elements — walls, foundations, roofing
• Fixed cabinetry — kitchen cabinets, built-in wardrobes
• Bathroom fixtures — vanity units, tubs (the plumbing/fixture side)
• Flooring substrate (floorboards, tiles), driveways, fences
• Extensions and renovations at cost

Eligible buildings are those where construction started after 15 September 1987. A post-1987 build at an original construction cost of $220,000 generates $5,500/yr in Div 43 deductions for 40 years — $220,000 total of lifetime deductions.

Critical point: Div 43 runs off original construction cost, not your purchase price. A house built in 2005 for $220,000 that you bought in 2024 for $1,200,000 still only generates Div 43 on the $220,000 construction basis. Later renovations you do yourself add to the basis at the cost incurred.

The QS report ROI question.

A quantity surveyor report is the standard way to substantiate both Div 40 and Div 43 deductions. Costs $550–$900, is itself fully tax-deductible (s8-1), and typically identifies $4,000–$8,000/year of first-year deductions you otherwise couldn’t substantiate.

ROI on the QS report is typically 5-10x in year 1 alone, then continues for 40 years of Div 43. For any eligible post-1987 building you intend to rent for 2+ years, the report pays for itself almost immediately.

Skip the QS report if: pre-1987 structure (no Div 43), property will be sold within 12 months (recapture at sale exceeds the short deduction window), or it’s your main residence (no rental income to offset).

Depreciation and CGT at sale.

Every dollar of Div 43 capital works deduction you claim during ownership reduces your CGT cost base at sale under ITAA 1997 s110-45(2). So $55,000 of Div 43 claimed across 10 years of ownership reduces your cost base by $55,000 and increases your capital gain by the same amount.

But the recaptured amount is still eligible for the 50% CGT discount if held 12+ months. Net effect: you saved tax at 37% marginal during rental; you pay back 18.5% (half of marginal) at sale. ~50% of deferred tax is kept permanently — better than not claiming it at all.

Div 40 has a separate balancing adjustment at disposal under s40-285 — usually small and handled automatically by your accountant.

If you claim Div 43 and use the CGT 6-year absence rule on a former main residence, you get both the deductions during rental AND full CGT exemption at sale (because s118-145 wipes the gain entirely). This is the strongest combination in AU property tax — see our 6-year rule deep-dive for the mechanic.

Common mistakes.

1. Not getting a QS report on a post-1987 investment property — typical miss: $3K-$8K/yr of deductions.
2. Trying to claim Div 40 on second-hand assets in a post-9-May-2017 established-property purchase — not deductible; ATO has been auditing this.
3. Confusing repairs (s25-10, deductible now) with improvements (capital, through Div 43 or cost base).
4. Claiming Div 43 on pre-1987 construction — not eligible.
5. Using straight-line where diminishing-value applies (Div 40) or vice versa.

The short version.

Div 43 is straight-line 2.5%/yr of original construction cost for 40 years — eligible on any post-15-Sep-1987 building. Div 40 is diminishing-value on plant & equipment — restricted to new assets only for post-9-May-2017 residential purchases. Get a QS report for any eligible post-1987 investment property; it pays for itself 5-10x in year 1. Model recapture into your CGT planning at sale, but don’t let it stop you claiming — ~50% of deferred tax is permanently kept.