What is tax depreciation?
Depreciation lets investment property owners deduct the wear-and-tear on the building (Division 43 — 2.5%/yr over 40 years on construction cost) and on removable plant and equipment (Division 40 — varying lives) against rental income.
Australian tax law lets investors claim depreciation on investment properties through two ATO divisions. Division 43 ('capital works') allows 2.5% per year over 40 years on the original construction cost of the building shell — applies to properties built after 1987.
Division 40 ('plant and equipment') covers removable assets — appliances, carpets, blinds, hot water systems, air conditioners — each with their own effective life under ATO tables. The 2017 Federal Budget restricted Div 40 to brand-new assets only for residential properties: second-hand purchases can no longer claim Div 40 on existing plant.
A quantity surveyor's depreciation schedule (one-off cost $400-$800) typically identifies $5,000-$15,000/year of deductions in the first 5 years of ownership for a modern investment property. That's worth $2,000-$7,000/year in tax saved at a 47% marginal rate — easily paying for the schedule many times over.
property depreciation · Div 43 · Div 40 · tax depreciation schedule
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General information only — not personal financial advice. Verified against https://ratesniffers.com.au/glossary on 2026-06-01.