What Are Division 40 and Division 43?
When you own an investment property in Australia, the tax law allows you to claim depreciation on two distinct categories of assets. Understanding the difference between them is fundamental to maximising your tax return.
Division 40 — Plant and Equipment covers all the removable, mechanical, and electronic assets within your property. Think of anything you could pick up and take with you: dishwashers, carpet, blinds, air conditioners, hot water systems, smoke detectors.
Division 43 — Capital Works covers the building structure itself and any fixed structural improvements — the walls, roof, floors, fixed plumbing, driveways, swimming pools (as a structure), and fences.
Both types of depreciation are claimable by residential and commercial property investors, though important rule changes in 2017 affected how Division 40 works for certain residential purchases.
---
Division 40: Plant and Equipment
What Qualifies?
The ATO maintains a comprehensive list of plant and equipment assets and their "effective life" — the number of years over which each asset is depreciated. Common examples include:
- Carpet: effective life 10 years
- Hot water system (electric): 12 years
- Air conditioner (split system): 10 years
- Dishwasher: 9 years
- Blinds and curtains: 10 years
- Exhaust fans: 10 years
- Security alarm system: 10 years
- Smoke detectors: 6 years
- Pool pump: 8 years
How Is It Calculated?
You can choose between two methods:
Diminishing Value (DV): Calculates depreciation as a percentage of the asset's opening written-down value each year. This produces larger deductions early and smaller ones later. Most investors prefer this approach.
Prime Cost (PC): Calculates depreciation as a fixed percentage of the asset's original cost each year, producing equal deductions every year.
For a $1,500 split-system air conditioner with a 10-year effective life:
- DV Rate: 20% per year — Year 1 deduction: $300; Year 2: $240; Year 3: $192...
- PC Rate: 10% per year — $150 deduction every year for 10 years
The 2017 Rule Change
The May 2017 Federal Budget introduced a critical restriction: from 1 July 2017, investors who purchase a previously used residential property cannot claim Division 40 depreciation on assets that were already in the property at the time of purchase.
This restriction does NOT apply to:
- Brand new properties (off the plan or new builds)
- Commercial properties of any kind
- Assets you purchase and install yourself after settlement
- Renovations you undertake after purchase
---
Division 43: Capital Works
What Qualifies?
Division 43 covers the construction cost of the building and any structural improvements. Specifically:
- The building itself (walls, roof, foundations, structural floors)
- Fixed plumbing and drainage
- Fixed electrical wiring
- Driveways and paths
- In-ground swimming pools (as a structure)
- Pergolas, garages, and carports
- Extensions and structural alterations
The Rate and Timeframe
For buildings constructed after 15 September 1987: the rate is 2.5% per year for 40 years. For buildings constructed between 18 July 1985 and 15 September 1987: the rate is 4% per year for 25 years. For buildings constructed before 18 July 1985: Division 43 is generally not available.
This means if you buy a property that was built in 1995 at a construction cost of $200,000, you can claim $5,000 per year in Division 43 deductions (2.5% × $200,000).
The 2017 Rule Does NOT Affect Division 43
Unlike Plant and Equipment, the 2017 budget changes did not restrict Division 43 claims. Whether you buy new or second-hand, if the building was constructed after the qualifying date, you can claim Division 43 — even for a property that has had multiple owners.
---
Why You Need a Quantity Surveyor
To claim depreciation accurately, you need to know the original construction cost of the building. Most property owners don't have this figure. A Chartered Quantity Surveyor like Koste uses industry cost data, comparable construction projects, and ATO-accepted methodology to estimate this figure precisely.
Your accountant cannot do this for you — they work with financial figures, not construction costs. The ATO explicitly recognises Chartered Quantity Surveyors as the appropriate professionals for this work.
Koste's Tax Depreciation Schedules cover both Division 40 and Division 43 in a single report, with a year-by-year schedule your accountant can use directly. Prices start from $595 for residential properties.
---
The Bottom Line
| | Division 40 | Division 43 | |---|---|---| | What it covers | Removable assets | Building structure | | Rate | Varies by asset type | 2.5% p.a. (post-1987) | | Duration | Asset's effective life | Up to 40 years | | Affected by 2017 rule? | Yes (residential only) | No | | New builds | Yes | Yes | | Second-hand residential | No (purchased items only) | Yes | | Commercial | Yes | Yes |
Use Koste's free Tax Depreciation Calculator to estimate your potential deductions, or order a professional schedule for a full ATO-compliant report.