Division 40 vs Division 43: Key Differences

Property depreciation is the deduction most investors leave on the table — and the two halves of it, Division 40 and Division 43, are constantly confused. They sit in different parts of the tax law, cover different parts of your property, depreciate at completely different speeds, and — since a 2017 law change — have very different rules about who is even allowed to claim them. Getting the split wrong means either missing thousands of dollars in legitimate deductions or claiming amounts the ATO will later reverse. This guide from Trinity Accounting Practice explains what each division covers, how they differ, and why the distinction matters most for second-hand residential properties.

The two divisions in one sentence each

Both divisions sit in the Income Tax Assessment Act 1997 and both let you claim the declining value of an income-producing property over time. The difference is what they cover:

• Division 40 — plant and equipment. The removable, mechanical and easily detachable assets inside a property: ovens, dishwashers, carpet, blinds, air conditioning units, hot water systems, ceiling fans, light fittings and the like. Each has its own effective life and depreciates relatively quickly.
• Division 43 — capital works. The fixed structure of the building itself: walls, roof, floors, doors, brickwork, tiling, built-in cupboards, driveways and retaining walls. This is claimed at a flat rate over decades.

A useful rule of thumb: if you tipped the building upside down, anything that would fall out is generally Division 40, and anything that stays put is generally Division 43.

Division 40 — plant and equipment depreciation

Division 40 assets depreciate over an effective life set by the ATO — a dishwasher might be ten years, carpet eight, a hot water system twelve. Because these items wear out faster than a building, they generate larger deductions in the early years. You generally choose between two methods:

• Diminishing value — larger deductions up front, tapering over time. Most investors choose this to bring deductions forward.
• Prime cost — the same deduction every year across the asset’s effective life.

Smaller assets get favourable treatment: items costing $300 or less can often be written off immediately, and items under $1,000 can be allocated to a low-value pool and depreciated at an accelerated rate. The total deduction over the life of an asset is the same under either method — the choice is about timing, not the final figure.

Division 43 — capital works deductions

Division 43 covers the building’s structure and permanent fixtures, claimed at a flat percentage of the original construction cost — not what you paid for the property. The rate depends on when construction commenced:

• 2.5% per year for 40 years — for residential buildings where construction commenced after 15 September 1987.
• 4% per year for 25 years — for residential buildings where construction commenced between 18 July 1985 and 15 September 1987.

If construction began before 18 July 1985, the original structure attracts no capital works deduction at all — but later renovations completed after that date can still qualify, even if a previous owner carried them out. The clock runs from when construction was completed, so a property built in 2000 still has its capital works deductions running until 2040. The ATO’s capital works guidance sets out the rates and conditions.

Division 40 vs Division 43 — side by side

The 2017 change that reshaped Division 40 for investors

This is the single most misunderstood point in property depreciation. From 7:30pm AEST on 9 May 2017, the government removed the ability for most investors to claim Division 40 depreciation on second-hand (previously used) plant and equipment in residential rental properties. In practice, if you bought an established residential property after that date, you generally cannot depreciate the existing oven, carpet or air conditioner — only assets you buy and install new yourself.

Several situations are unaffected, and this is where careful advice pays off:

• Brand-new properties — investors who buy a newly built property can still claim Division 40 on the new assets.
• Assets you install new — replace the dishwasher or re-carpet, and the new item is depreciable.
• Commercial property — the restriction applies to residential property; commercial and other non-residential premises are not caught.
• Properties already owned, or held by companies and certain trusts — the rules differ, and the ATO’s second-hand depreciating assets guidance sets out the detail.

Crucially, the 2017 change did not touch Division 43. Every eligible owner — first, second or tenth — can still claim capital works deductions on the structure, which is why, for many second-hand properties, Division 43 is now the larger and more reliable deduction.

Worked example — a Sydney investment property

Priya buys an established apartment in Hurstville in 2026 for $850,000. It was built in 2005, and a quantity surveyor estimates the original construction cost of her share of the building at $320,000.

• Division 43: $320,000 × 2.5% = $8,000 per year in capital works deductions, running until 2045.
• Division 40: because she bought an established property after 9 May 2017, she cannot depreciate the existing oven, carpet or air conditioner. When she replaces the dishwasher with a new $1,500 unit, that new asset becomes depreciable.

Had Priya bought the same apartment brand-new, she could also have claimed several thousand dollars a year in Division 40 on the original appliances and fittings — often the difference that makes a new property’s after-tax cash flow more attractive. The split is not academic; it changes the return.

A Trinity insight from 22 years in practice

The most expensive depreciation mistake we see at Trinity is not over-claiming — it is failing to get a quantity surveyor’s depreciation schedule in the first place. Investors assume that because they bought an older or second-hand property, there is “nothing to claim”, so they skip the schedule to save a few hundred dollars. They then forfeit the Division 43 deductions — frequently $5,000 to $10,000 a year — that survived the 2017 change entirely. A depreciation schedule prepared by a qualified quantity surveyor is itself tax-deductible, lasts the life of the property, and almost always returns many times its cost in the first year alone. If you own an income-producing property and don’t have one, that is the first call to make.

What this means for you

• If you bought an established residential property after 9 May 2017: assume the existing plant and equipment (Division 40) is generally off the table, but Division 43 capital works are not — get the schedule anyway.
• If you replace or install new assets: keep the invoices; new items are depreciable under Division 40 regardless of when you bought the property.
• If you own commercial property: the 2017 residential restriction does not apply — your Division 40 position is generally intact.
• If you are weighing a new vs an established property: the Division 40 difference can materially change after-tax cash flow — model it before you commit.
• If you have never had a depreciation schedule: a quantity surveyor’s report is deductible and usually pays for itself many times over.

How Trinity can help

Trinity Accounting Practice works alongside qualified quantity surveyors to make sure every property in your portfolio is claiming the full, correct split between Division 40 and Division 43 — and that the 2017 rules are applied properly so deductions stand up to ATO scrutiny. We review depreciation schedules, fold them into your annual return, and coordinate the wider picture: negative gearing, capital gains planning and the right ownership structure. For broader context, see our guide to rental property depreciation in Australia.

Talk to Trinity about your property depreciation →

General advice only. This article contains general information current as at June 2026 and does not constitute tax, financial or legal advice. It does not take into account your personal circumstances, objectives or needs. Before acting on any information in this article, you should consider its appropriateness to your situation and seek professional advice from Trinity Accounting Practice or another qualified adviser. Liability limited by a scheme approved under Professional Standards Legislation.