Investment Property Depreciation: New Build vs Existing Property
Depreciation is one of the largest non-cash deductions available to property investors in Australia. 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 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:
Existing (20 yrs old, $250k cost)
2.5% of $250,000 for remaining 20 years:
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:
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.
A quantity surveyor (also called a tax depreciation specialist) prepares a depreciation schedule that itemises every claimable component of your property. Key facts:
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.