Division 40 vs Division 43: How Property Depreciation Actually Splits

Almost every conversation about investment property depreciation eventually arrives at two numbers that sound like tax file references: Division 40 and Division 43. Understanding Division 40 vs Division 43 is important because each division covers different property assets and follows different depreciation rules.

The distinction is worth understanding, because it determines how much you can claim, how quickly you can claim it, and for many investors who bought after 2017 whether you can claim one of them at all. Division 43 covers capital works: the building's structure and permanently fixed items, deducted at 2.5% per year over 40 years. Division 40 covers plant and equipment: removable and mechanical assets like ovens, air conditioners, carpets and blinds, deducted over each item's individual effective life. Division 43 is the larger and more durable deduction; Division 40 is the faster one, but is restricted for second-hand residential property acquired after 9 May 2017.

The main difference when comparing Division 40 vs Division 43 is that Division 43 applies to the building and permanent structural improvements, while Division 40 applies to removable or mechanical assets.

Division 43: the building itself

Division 43 of the Income Tax Assessment Act 1997 deals with capital works deductions essentially the construction cost of the building and its permanent structural components. What typically falls under Division 43:

• Foundations, slab, framing, roof structure and walls

• Brickwork, concrete and structural steel

• Built-in cupboards, kitchen cabinetry and benchtops

• Tiling, doorframes and windows

• Driveways, retaining walls, fencing and in-ground pools

• Bathroom fittings such as baths, basins and toilet pans

• Structural improvements and permanent renovations

The rate is fixed. For residential rental property constructed after 15 September 1987, capital works are deducted at 2.5% per year over 40 years. There is no acceleration, no diminishing value option and no immediate write-off. Consistent and predictable.

Two conditions catch investors out.

First, the construction start date. If your residential property was built before 15 September 1987, the original structure attracts no Division 43 deduction. However, and this is regularly missed subsequent renovations completed after that date do qualify, including renovations carried out by a previous owner. A 1960s home in inner Melbourne that was renovated in 2009 can still hold meaningful capital works deductions, even though the original structure claims nothing.

Second, the 40-year clock runs from construction completion, not from your purchase date. Buy a property built in 2010 and you inherit the remaining 24 years of the original 40, not a fresh 40.

Division 40: plant and equipment

Division 40 covers depreciating assets items that are mechanical, removable, or have a limited effective life independent of the building. Typical Division 40 assets in a residential rental:

• Ovens, cooktops, rangehoods and dishwashers

• Air conditioning units and ceiling fans

• Hot water systems

• Carpets, floating floors, curtains and blinds

• Smoke alarms, security systems and intercoms

• Light fittings (not the wiring, which is capital works)

• Garage door motors, solar panels and inverters

Each asset has its own effective life determined by the ATO, and you can generally choose between two methods:

Method	How it works	Best suited to
Diminishing value	A higher percentage of the remaining value each year larger deductions early, tapering later	Investors wanting maximum deductions in the first few years
Prime cost	An equal amount each year across the asset's effective life	Investors wanting a smooth, predictable deduction profile

Low-value pooling is also available, allowing assets under a threshold to be grouped and depreciated at an accelerated rate. A quantity surveyor will typically model both methods in your schedule so you and your accountant can compare.

The 2017 rule that changed everything

On 9 May 2017, the federal government announced changes limiting plant and equipment deductions for residential property. The practical effect: if you acquired a second-hand residential property after 7:30pm on 9 May 2017, you generally cannot claim Division 40 depreciation on the plant and equipment that was already in the property when you bought it.

You can still claim:

• Full Division 43 capital works deductions unaffected by the change

• Division 40 on assets you purchase and install yourself a new dishwasher, new carpet, a new air conditioner

• Full Division 40 on brand-new property, where you are the first to use the assets

• Division 40 on commercial property, which is outside the scope of the restriction

This is why the two divisions now behave so differently depending on what you bought and when. The impact of Division 40 vs Division 43 becomes particularly clear when comparing a new property with a second-hand residential property.

Two investors, same suburb, different outcomes

Consider two investors who each buy a two-bedroom apartment in the same Brisbane building in 2024.

• Investor A buys a brand-new apartment off the plan. She is the first occupant, so the appliances, carpets, air conditioning and blinds have never been used. She claims Division 43 capital works on the building and the full Division 40 schedule on the plant and equipment. Her first-year deduction is substantially front-loaded, because Division 40 assets on diminishing value produce their largest deductions early.

• Investor B buys an identical apartment in the same building but it's five years old and previously tenanted. Under the 2017 rules, he cannot claim Division 40 on the existing appliances, carpets or air conditioning. He claims Division 43 capital works in full. His first-year deduction is materially lower than Investor A's.

Two years later, Investor B replaces the carpet and the dishwasher. Those are assets he purchased and installed, so they enter his Division 40 schedule at cost.

The lesson: Investor B still has a worthwhile depreciation claim. Division 43 alone, on a modern apartment, is frequently the larger of the two deductions across the life of the asset. The common mistake is assuming that "no Division 40" means "no depreciation schedule worth getting."

Why you can't split this yourself

The obvious question: can't your accountant just allocate the purchase price between structure and fittings? Generally, no. The ATO's position is that where construction costs are not known, an appropriately qualified person must estimate them and for building construction costs, that is a quantity surveyor. Accountants, valuers and real estate agents are not recognised for this purpose.

A quantity surveyor's role is to determine the original construction cost of the building (Division 43) and to identify, value and assign effective lives to every depreciable asset (Division 40). On an established property where you have no construction invoices, this is estimation work requiring construction cost expertise measuring the building, identifying materials and finishes, and applying historical cost data to the relevant construction date.

That's the substance of a tax depreciation schedule: a QS-prepared document splitting the property into its Division 43 and Division 40 components, with year-by-year deductions across the full 40-year period. Your accountant then applies it at tax time.

What a properly prepared schedule should show you

When you receive your schedule, check that it includes:

• A clear separation of Division 43 capital works and Division 40 plant and equipment

• Both diminishing value and prime cost calculations, so your accountant can choose

• A 40-year projection, not just the current financial year

• Effective lives assigned per asset, with the basis stated

• Low-value pool treatment where applicable

• Confirmation of the construction commencement date used for Division 43

• Explicit treatment of the 2017 plant and equipment rules for your acquisition date

If a schedule presents a single blended depreciation figure without separating the divisions, it isn't giving your accountant what they need.

Frequently asked questions

Which is bigger Division 40 vs Division 43?

Over the full 40 years, Division 43 is almost always larger, because it covers the building itself. Division 40 tends to produce bigger deductions in the first few years, then falls away as assets reach the end of their effective lives.

Can I claim Division 43 on a property built before 1987?

Not on the original structure. But qualifying renovations and improvements completed after 15 September 1987 can be claimed including work done by previous owners. A quantity surveyor can identify and cost this.

Does the 2017 change affect commercial property?

No. The plant and equipment restriction applies to second-hand residential property. Commercial property retains full Division 40 entitlement, which is one reason commercial depreciation claims are often substantial.

What if I've owned my property for years and never claimed?

Amended returns are generally possible for a limited number of prior years, and a schedule can be prepared retrospectively from your acquisition date. Your accountant can advise on the amendment window that applies to you.

Do I need a new schedule after renovating?

Usually the existing schedule can be updated rather than replaced. New works are added to Division 43, and newly installed assets enter Division 40 at cost. Removed assets may be eligible for a scrapping deduction worth raising with your accountant before demolition begins.

Is a depreciation schedule worth it if I only own one property?

That depends on the property's age, construction type and condition. A modern apartment in Sydney, Melbourne, Brisbane or Perth typically holds meaningful Division 43 value. Most quantity surveyors will assess likely deductions before you commit, so you can make the call on actual numbers.

Getting the split right

Division 40 and Division 43 aren't interchangeable line items they are two different deduction regimes with different rates, different rules and, since 2017, different eligibility. Getting the allocation right is what determines whether you're claiming what you're entitled to. Propti coordinates ATO-compliant depreciation reports prepared by qualified quantity surveyors, covering both divisions in full, for residential and commercial property across Australia. If you need broader cost reporting for a construction or development project, our QS reports cover that too. It's also worth reading how far back you can go with backdated depreciation schedules. You can book in a report with your property details, or browse our property insights for more investor guidance.