What's the difference between Div 40 and Div 43 depreciation on a rental?
There are two kinds. Div 43 capital works covers the building itself, usually 2.5% of the original construction cost a year, and a later owner can keep claiming it. Div 40 covers removable items like dishwashers and carpets, claimed over each item's effective life. Since 2017, most owners can't claim Div 40 on second-hand items that came with an established property, but new items you buy yourself are fine.
The short version
- Using prime cost, Hannah claims about $5,329.75 for 2026-27, and almost all of it is the building, not the things inside it.
- A building that is decades old may still have years of capital works left, and renovations by earlier owners can count too. That is the main reason people pay for a depreciation schedule on an established place.
- The rule doesn't apply to some owners, such as companies and other corporate tax entities, super funds other than SMSFs, some unit trusts, and anyone using the property in carrying on a business, including a business of letting rental properties. Most individuals with one or two rentals are not in that group.
You bought an established unit, and someone at a barbecue said “get a depreciation schedule, it's free money”. Then someone else said you can't claim depreciation on older places any more. Both are half right.
Depreciation is a deduction for something wearing out over time. For a rental, the ATO splits it into two very different piles, and the rules for each are not the same.
Two kinds of depreciation
- Capital works (Division 43): the building and things built into it. Walls, roof, floors, built-in cupboards, the structure of a bathroom, fences and driveways. Usually 2.5% a year of the construction cost.
- Depreciating assets (Division 40): items that are not part of the structure. The ATO's examples include a dishwasher, floating timber floors, carpets, curtains, washing machines, fridges and furniture. Claimed over each item's effective life.
Div 40 and Div 43 are just the parts of the tax law each one lives in. Accountants and quantity surveyors use the names, so it helps to know them.
Capital works: the building
Capital works deductions are based on what it cost to build, not what you paid. Your purchase price includes the land and the market, so it can't be used.
- Residential construction started after 15 September 1987 generally gets 2.5% a year.
- It runs for 40 years from when construction was finished, so a unit finished in 2005 has deductions until about 2045.
- When the property is sold, the right to claim what is left passes to the new owner, as long as they keep using it to earn income.
- If you don't know the construction cost, a quantity surveyor or other independent qualified person can estimate it. The fee for that estimate is deductible.
Depreciating assets: the things inside
Each depreciating asset has an effective life, set by the Commissioner or worked out by you on a reasonable basis. You then choose one of two methods.
- Prime cost: the same amount each year. Cost x (days held / 365) x (100% / effective life).
- Diminishing value: a bigger claim early that shrinks each year. Base value x (days held / 365) x (200% / effective life).
Two shortcuts for cheaper items:
- Items costing $300 or less can be claimed in full straight away, as long as they are not part of a set that costs more than $300 together.
- Items valued under $1,000 can go into a low-value pool and be depreciated together.
The second-hand rule, and the old dishwasher
This is the part that catches people out. In most cases, you can't claim Div 40 depreciation on second-hand depreciating assets in a residential rental after 1 July 2017.
So if you buy an established unit and it comes with carpet, blinds and a dishwasher, those items are second-hand to you. No Div 40 claim, even if the previous owner was still claiming them. The same applies if you turn your own home into a rental on or after 1 July 2017: the items that were already in your home are not claimable.
What you can still claim:
- New items you buy and install yourself.
- Capital works on the building, which is not affected by this rule.
- Assets that meet the old timing tests: bought before 7:30pm (AEST) on 9 May 2017 and in the rental before 1 July 2017.
What a depreciation schedule actually is
A depreciation schedule is a report, usually from a quantity surveyor, that sets out the capital works and depreciating assets for your property and what can be claimed each year. Your tax agent copies the numbers for each year into your return.
A good schedule for an established place should:
- Show the estimated construction cost and completion date for the building and any later renovations.
- Keep second-hand items that came with the property out of the Div 40 claims, or flag them clearly.
- Leave room to add new items you buy later, with their cost and install date.
If a schedule shows big Div 40 claims for carpet and appliances on a place bought after 2017, ask why. It may have been prepared for a different kind of owner, or it may simply be wrong.
Putting it together
Worked example
Hannah's 2005 unit in Adelaide
Example only. In 2025 Hannah bought an established unit built in 2005, and it is rented for the whole 2026-27 year. A quantity surveyor estimates the construction cost at $200,000. It came with carpet and a dishwasher. On 1 October 2026 she installs a new $1,200 dishwasher, and assumes a 10 year effective life just for this example. She also buys a new $240 microwave. Example only.
| Step | Sum | Result |
|---|---|---|
| Capital works on the building | $200,000 x 2.5% | $5,000 |
| Carpet and dishwasher that came with the unit | Second-hand, after 1 July 2017 | $0 |
| Days Hannah holds the new dishwasher in 2026-27 | 1 October 2026 to 30 June 2027 | 273 days |
| New dishwasher, prime cost | $1,200 x (273 / 365) x (100% / 10) | about $89.75 |
| New dishwasher, diminishing value instead | $1,200 x (273 / 365) x (200% / 10) | about $179.51 |
| New microwave, $300 or less | Claimed in full | $240 |
Using prime cost, Hannah claims about $5,329.75 for 2026-27, and almost all of it is the building, not the things inside it.
The 10 year effective life is an assumption for the sums only. Look up the real effective life for any item before you claim it.
Look at the size of each line. The building claim is what makes a depreciation schedule worth paying for. The second-hand items are worth nothing to Hannah. The new items help a bit.
Before tax time
- Find out the construction date and cost, or get a quantity surveyor's estimate.
- List items that came with the property separately from items you bought new.
- Keep receipts and install dates for every new item.
- Check the effective life of each new item with the ATO, or ask your tax agent.
This is general information. Depreciation interacts with capital gains tax when you sell, so it is worth checking your figures with the ATO or a registered tax agent.
Key numbers
| What | Figure and source |
|---|---|
| Examples of depreciating assets | Dishwasher, floating floors, carpets, curtains, washing machines, fridges, furniture ATO |
| $300 immediate deduction | $300 or less ATO |
| Low-value pool | Under $1,000 ATO |
| Second-hand assets rule | After 1 July 2017 ATO |
| Old timing exception | Before 7:30pm AEST 9 May 2017 ATO |
| Home turned into rental | Items in home not claimable ATO |
Free official help
- ATO: Depreciating assets in rental properties
What counts as a depreciating asset, the $300 rule and the low-value pool. - ATO: Second-hand depreciating assets
The 2017 rule and who it applies to. - ATO: Work out your capital works deductions
Rates, construction dates and using a quantity surveyor estimate. - ATO: Working out decline in value
The prime cost and diminishing value formulas with examples.
Questions people ask
Is a depreciation schedule worth it on an older property?
It depends mostly on how much capital works is left on the building and any past renovations. Since second-hand fittings generally can't be claimed, the building is where most of the value usually is.
Can I claim depreciation on the appliances that came with my rental?
In most cases, no. Second-hand depreciating assets in a residential rental can't be claimed after 1 July 2017, unless the old timing exceptions apply.
What about my own furniture when I turned my home into a rental?
If the home became a rental on or after 1 July 2017, the items that were already in it can't be depreciated.
Do I need a quantity surveyor for capital works?
Only if you don't know the construction cost. The ATO accepts an estimate from a quantity surveyor or other independent qualified person, and the fee is deductible.
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Keep reading
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Sources
- Depreciating assets in rental properties, ATO. https://www.ato.gov.au/individuals-and-families/investments-and-assets/property-and-land/residential-rental-properties/rental-expenses/depreciating-assets-in-rental-properties, accessed 2026-10-16.
- Second-hand depreciating assets, ATO. https://www.ato.gov.au/individuals-and-families/investments-and-assets/property-and-land/residential-rental-properties/rental-expenses/depreciating-assets-in-rental-properties/second-hand-depreciating-assets, accessed 2026-10-16.
- Work out your capital works deductions, ATO. https://www.ato.gov.au/individuals-and-families/investments-and-assets/property-and-land/residential-rental-properties/rental-expenses/capital-expenses/work-out-your-capital-works-deductions, accessed 2026-10-16.
- Working out decline in value, Depreciating assets guide 2026, ATO. https://www.ato.gov.au/forms-and-instructions/depreciating-assets-guide-2026/depreciating-assets-effective-life-cost-and-decline-in-value/working-out-decline-in-value, accessed 2026-10-16.
- Rental expenses, Rental properties guide 2026, ATO. https://www.ato.gov.au/forms-and-instructions/rental-properties-2026/rental-expenses, accessed 2026-10-16.