Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 436

Maximising your property tax depreciation and claims

Property investors are always looking for ways to reduce their tax liability. One way of reducing the taxable income from your investment property is by claiming depreciation deductions on items such as carpets, appliances and fixtures.

There are some important rules imposed by the Australian Tax Office (ATO) that apply when it comes to claiming depreciation.

What is property tax depreciation?

Before delving into the details relating to Division 40 and Division 43 assets, it is important to have a foundational understanding of what property tax depreciation is and how it can benefit you.

As your building ages, it becomes subject to general wear and tear. Each year, the value of the building and its attached assets decrease, and this is known as depreciation. Depreciation applies to two different types of assets:

  • Capital works (Division 43 assets)
  • Plant and equipment (Division 40 assets).

But depreciation isn’t necessarily a bad thing for property investors. The ATO allows investors to claim this loss in value as a tax deduction provided they are generating an income from their investment.

Claiming depreciation on Division 43 assets

Division 43 or capital works refers to the depreciation of the structure of the building. You can also claim capital works deductions on the cost of:

  • structural improvements
  • construction and extensions, and
  • earthworks for environmental protection.

Examples of items where a capital works deduction can be claimed include:

  • fencing
  • driveways
  • garages
  • roofing
  • paint
  • tiling

The structure of residential and commercial buildings generally has an effective life span of 40 years. It's possible to continue claiming capital works deductions for 40 years from the date of construction provided income is generated from the property.

In circumstances where investors do not know the construction costs, a qualified Quantity Surveyor will be responsible for estimating the cost of the building.

Whether a building qualifies for capital allowances is dependent on when it was built and the type of property.

Source: Duo Tax

What are Division 40 assets?

The term Division 40 refers to the plant and equipment assets found within the investment property. These assets are generally easily detachable from the property.

Unlike capital works which depreciate over 40 years, plant and equipment fixtures depreciate at a rate according to the ATO’s Asset Effective Life Schedule, which gives guidance on how many years an asset is effective before it’s worn out. The ATO recognises more than 6,000 different assets that investors can claim tax deductions on.

For example, a carpet, which is subject to wear and tear, has an effective life of eight years. Other examples of Division 40 assets include:

  • air conditioning unit
  • oven and rangehood
  • blinds
  • carpet
  • light shades
  • ventilation fan

Depreciation methods

Investors can use two methods to calculate the depreciation on plant and equipment assets:

  • diminishing value method
  • prime cost method.

Although the end value is the same, investors typically prefer the diminishing value method to allow for a higher depreciation deduction in the first few years.

For example, according to the ATO, a dishwasher has an effective life of 10 years. If an investor depreciates it using the diminishing value method at a rate of 20%, they can claim a deduction of $2,000 in the first year. In the following year, reduce the base value (i.e. $10,000) by your previous claim, so claim 20% on $8,000. And depreciation will continue until it reaches a value of less than $1,000.

When the value is below $1,000, the depreciation rate increases to 37.5% (as per low-value pooling).

A low-value pool is a group of assets that have a value of less than $1,000. Investors can pool low-cost assets (i.e. assets that cost you less than $1,000 to purchase) and low-value assets together and depreciate them at a much faster rate.

The ATO allows investors to write off eligible plant and equipment assets that cost less than $300 as a full deduction in the year the asset was purchased.

Changes to Division 40 claiming laws

After the Federal Budget in 2017, a few new rules were introduced regarding tax depreciation that would impact your claim depending on when you acquired the property:

Before 9 May 2017

After 9 May 2017

A property investor can claim depreciation on plant and equipment that form part of the property they purchased, according to a Quantity Surveyor’s assessment of the asset’s remaining life and value.

Depreciation only applies for costs on new plant and equipment you paid for and installed or plant and equipment that were included as part of the new property.

This means that investors cannot claim deductions on plant and equipment bought by the property’s previous owners.

Closing remarks

To maximise tax deductions on Division 40 and Division 43 assets, investment property owners need a tax depreciation schedule. It is a comprehensive report detailing the claimable deductions on an investment property.

The purpose of a tax depreciation schedule is to outline the value of both the Division 40 and Division 43 assets, as well as how much it has depreciated and will depreciate. This will include a calculation of tax deduction claims.

The tax depreciation schedule document is typically prepared by a professional quantity surveyor, who will inspect your investment property and assign a value to each asset. A single schedule provides 40 years of claimable deductions (or the maximum entitled years). It will help to reduce taxable income and realise a positive cash flow sooner.

 

Tuan Duong is the Principal and Founder of Duo Tax Quantity Surveyors. He is a professional member of the Australian Institute of Quantity Surveyors and a Registered Tax Agent, authorised to offer advice on matters related to depreciation. This article is general advice and does not consider the circumstances of any person.

 

  •   1 December 2021
  • 1
  •      
  •   

RELATED ARTICLES

EOFY and new depreciation rules for property

Tax deductions are still available for property investors

What tax deductions are available to property investors?

banner

Most viewed in recent weeks

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

The hidden property empire of Australia’s politicians

With rising home prices and falling affordability, political leaders preach reform. But asset disclosures show many are heavily invested in property - raising doubts about whose interests housing policy really protects.

Latest Updates

Shares

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Superannuation

When you can withdraw your super

You can’t freely withdraw your super before 65. You need to meet certain legal conditions tied to your age, whether you’ve retired, or if you're using a transition to retirement option. 

Retirement

A national guide to concession entitlements

Navigating retirement concessions is unnecessarily complex. This outlines a new project to help older Australians find what they’re entitled to - quickly, clearly, and with less stress. 

Property

The psychology of REIT investing

Market shocks and rallies test every investor’s resolve. This explores practical strategies to stay grounded - resisting panic in downturns and FOMO in booms - while focusing on long-term returns. 

Fixed interest

Bonds are copping a bad rap

Bonds have had a tough few years and many investors are turning to other assets to diversify their portfolios. However, bonds can still play a valuable role as a source of income and risk mitigation.

Strategy

Is it time to fire the consultants?

The NSW government is cutting the use of consultants. Universities have also been criticized for relying on consultants as cover for restructuring plans. But are consultants really the problem they're made out to be?

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.