Investment Property Depreciation: New Build vs Existing Property
Depreciation is one of the largest non-cash deductions available to property investors in Australia. But the amount you can claim varies dramatically depending on whether you buy a new build or an existing property — especially after the May 2017 budget changes.
| New Build | Existing Property | |
|---|---|---|
| Div 43 (capital works) | Full 2.5% over 40 years | Remaining life only (if post-1987) |
| Div 40 (plant & equipment) | All items claimable | Restricted since May 2017 |
| Year 1 deductions (typical) | $8,000 – $15,000+ | $2,000 – $5,000 |
| Quantity surveyor report | Recommended | Essential |
| Best suited for | Maximising deductions | Established suburbs, capital growth |
Division 43: Capital Works Deductions
Division 43 covers the building structure itself — walls, roof, doors, built-in cupboards, and fixed fixtures. For properties built after 15 September 1987, you can claim 2.5% of the original construction cost per year for 40 years.
New Build ($400k construction)
2.5% of $400,000 per year:
- Annual Div 43 deduction: $10,000
- Over 40 years: $400,000
Existing (20 years old, $250k cost)
2.5% of $250,000 for remaining 20 years:
- Annual Div 43 deduction: $6,250
- Remaining total: $125,000
Division 40: Plant & Equipment
Division 40 covers removable items inside the property. These depreciate at varying rates based on their effective life as determined by the ATO. Common items include:
- Carpets and floor coverings: 8–10 year effective life
- Blinds and curtains: 5–7 year effective life
- Hot water systems: 10–12 year effective life
- Air conditioning units: 10 year effective life
- Ovens and cooktops: 12 year effective life
Critical 2017 change: Since 1 July 2017, buyers of second-hand residential property can no longer claim Division 40 deductions on existing plant and equipment. Only the original owner (or the first buyer of a brand-new property) can claim these deductions.
When a New Build Makes Sense
- You want maximum deductions: Full Div 43 + Div 40 can deliver $10,000–$15,000+ in year one
- You're on a high marginal rate: Higher deductions save more at 37%+ tax rates
- You're negatively gearing: Depreciation reduces your out-of-pocket loss
- You value low maintenance: New builds come with builder warranties and modern fittings
When an Existing Property Makes Sense
- Established suburb premium: Better capital growth potential in established areas
- Higher rental yields: Existing properties in proven rental markets can outperform new builds
- Renovation opportunity: You can claim Div 40 on new items you install yourself
- Lower purchase price: No developer margin built into the price
The Quantity Surveyor Report
A quantity surveyor (also called a tax depreciation specialist) prepares a depreciation schedule that itemises every claimable component of your property. Key facts:
- Cost is typically $300–$700 and is itself tax deductible
- The schedule covers the full life of the property (up to 40 years)
- For existing properties, the surveyor inspects the property and estimates remaining useful life
- For new builds, they work from construction plans and invoices
Estimate your depreciation deductions
Use our depreciation calculator to see how much you could claim on your investment property.
Open Depreciation CalculatorFrequently Asked Questions
Can I claim depreciation on a second-hand investment property?
You can claim Division 43 capital works deductions on second-hand properties if construction began after 15 September 1987. However, since May 2017 you can no longer claim Division 40 plant and equipment deductions on previously used assets in second-hand residential properties.
What is the difference between Division 43 and Division 40 depreciation?
Division 43 covers the building structure itself (walls, roof, fixed fixtures) and is claimed at 2.5% per year over 40 years. Division 40 covers removable plant and equipment items like carpets, blinds, hot water systems, and air conditioning units, which depreciate at varying rates based on their effective life.
Do I need a quantity surveyor report for depreciation?
Yes, the ATO requires a depreciation schedule prepared by a qualified quantity surveyor to claim building depreciation deductions. The cost of the report (typically $300–$700) is tax deductible and the schedule covers the life of the property.
How did the May 2017 budget change affect property depreciation?
From 1 July 2017, investors purchasing second-hand residential properties can no longer claim Division 40 plant and equipment deductions on existing assets. Only the original owner or a buyer of a brand-new property can claim Division 40. This significantly reduced the depreciation benefits for existing property purchases.