Property Depreciation for Tax: Division 40 & Division 43 Explained

Overview

Rental property depreciation can involve deductions for building expenditure and for individual assets. A purchase price, a building's age or a quotation for a depreciation schedule does not establish the deduction available to an owner.

Use the negative gearing calculator only with an annual deduction that has been checked for the property. Its output is an estimate, not a tax ruling.

Division 43: construction expenditure

A capital works deduction concerns eligible construction costs. The ATO distinguishes the construction commencement date, completion date and the period of qualifying use. These are different from the date an investor purchases a finished property.

For ordinary residential construction commencing from 18 July 1985 to 15 September 1987, the general rate is 4% over 25 years. For construction commencing after 15 September 1987, the general rate is 2.5% over 40 years. Special categories, including qualifying build-to-rent developments, can have different treatment. Check the ATO construction tables for the relevant project rather than selecting a rate from its advertised age.

A deduction cannot start before completion. An older building's original deduction period may already have ended; later qualifying works need separate records.

Worked example: keep the purchase price out

Assume $300,000 of eligible construction expenditure, an applicable 2.5% rate, a remaining deduction period and qualifying rental use for a full year by a sole owner. The illustrative annual amount is $300,000 × 2.5% = $7,500 before any required adjustments.

This does not establish a $7,500 refund. It is also not 2.5% of the home's sale price. Do not apply the example without checking the rate, remaining period, ownership and use.

Division 40: individual depreciating assets

The ATO guide to depreciating assets covers decline-in-value deductions and restrictions for certain second-hand assets in residential rentals. Rules generally refer to assets acquired under contracts at or after 7:30 pm on 9 May 2017, with separate private-use provisions and exceptions.

New assets may have deductions where conditions are met. An item previously used in a private home does not become new when moved into a rental. Do not assume all items supplied with a newly purchased home qualify, or that every second-hand item is excluded without checking the exceptions.

Is a quantity surveyor's schedule compulsory?

A schedule can organise construction and asset information, but it is not a universal prerequisite or a promise of savings. Start with actual construction records. Where those costs cannot be determined, the ATO allows an estimate by a quantity surveyor or another independent qualified person. Ask what information is missing and what the report will cover before paying for one. Fees vary; this guide does not quote a market price.

Cash flow and record keeping

Non-cash deductions must be separated from cash expenses. The investment property yield calculator models rental cash inputs; the depreciation glossary gives an example where cash surplus and taxable rental loss differ.

Keep invoices, construction dates, schedules, ownership details and rental/private-use records. Capital works deductions can affect the CGT cost base on sale, so retain the records beyond the current tax return.

General information only, not tax, financial, credit or investment advice. Estimates do not determine a deduction or refund. Check the linked ATO guidance and speak with a registered tax agent. Last updated: 12 September 2026.