Guides · Tax & rules · Updated 2026-07-13
Division 43 vs Division 40 Depreciation: Why Building Age Decides What You Can Claim in 2026
Depreciation is a non-cash deduction on an Australian investment property — a claim against your rental income that never leaves your bank account. It comes in two distinct regimes: Division 43, which covers the building structure itself, and Division 40, which covers the plant and equipment inside it. What you can actually claim under each is determined less by what you paid than by when the building was constructed and whether you bought it new.
Two rule changes make the distinction sharper than it used to be. Since 2017, deductions on second-hand residential plant have been restricted, so buying established generally means forfeiting Division 40 claims on the existing fittings. And from 12 May 2026, the Federal Budget's negative gearing changes mean the rental loss that depreciation helps create is treated differently depending on which property class you hold. The same deduction now behaves very differently across a new build, an established purchase, and a grandfathered holding.
Division 43 capital works: 2.5% a year for 40 years
Division 43 covers the capital works — the structural cost of the building. For residential buildings constructed after 15 September 1987, the construction cost is written off on a straight line at 2.5% per year over 40 years. It is a mechanical, predictable claim: the same amount each year until the 40 years are exhausted.
The critical detail is that the 40-year clock runs from construction, not from your purchase. Buy a house built 25 years ago and roughly 15 claim years remain; buy one built on or before 15 September 1987 and there is no residential capital works claim under the 2.5% regime at all. Building age, not purchase price, sets the ceiling.
Division 40 plant and the 2017 second-hand restriction
Division 40 covers plant and equipment — the removable assets such as appliances, carpets and blinds — which depreciate separately from the building shell.
Since 2017, deductions on second-hand residential plant have been restricted: broadly, only new plant qualifies for subsequent owners. Buy an established property and the oven, carpet and air conditioning that came with it are generally not depreciable in your hands, even though they were for the previous owner. New plant you purchase and install yourself remains claimable — but the plant that arrives with an established purchase is, for depreciation purposes, largely dead weight.
Why building age decides everything
- —Constructed on or before 15 September 1987: no residential Division 43 capital works claim under the 2.5% regime, and any second-hand plant is caught by the 2017 restriction. That leaves little to depreciate beyond any new plant installed after purchase.
- —Constructed after 15 September 1987, bought established: Division 43 continues on whatever remains of the 40 years, but the existing plant is broadly not claimable by the new owner.
- —Brand-new build: the full 40 years of Division 43 lie ahead, and every item of plant is new, so Division 40 applies in full. This combination is why new builds depreciate best — both regimes operate at maximum strength from day one.
Depreciation under the 2026–27 negative gearing rules
Depreciation deductions add to your rental loss, and the 2026–27 Federal Budget (announced 12 May 2026) changed what a rental loss is worth. Properties owned or contracted before 12 May 2026 are grandfathered — the old negative gearing rules keep applying. New builds purchased or contracted from 12 May 2026 can still deduct rental losses against salary. Established properties bought after that date have their losses quarantined: carried forward against future rental profits or the eventual capital gain, not deducted against other income.
The effects compound in the same direction. A new build carries the deepest depreciation and is the only post-budget purchase class whose resulting loss still offsets salary. An established post-budget purchase carries thinner depreciation and a quarantined loss — the deduction still exists, but its benefit is deferred rather than delivered at each tax return.
How Plintha models Division 40 and Division 43
Plintha's depreciation modelling is aware of the building's physical age, applying Division 43 and Division 40 according to what the property can actually support rather than a generic allowance. Each property is also classified as grandfathered, new build, or established post-budget, and that class changes the tax modelling — including how the depreciation-driven loss is treated.
Every figure in the report carries provenance: computed, [ESTIMATE] with the assumption shown, or [ASSUMED] with the overridable default disclosed. The result rolls into a Meets Criteria, Conditional, or Below Criteria verdict with a 0–100 score across both a Yield and a Growth lens. The free tier includes one analysis per month, with no card required.
Common questions
Can I claim depreciation on a property built before 1987?+
Generally not much. The 2.5% residential capital works deduction applies to buildings constructed after 15 September 1987, so older construction falls outside that regime. Second-hand plant in the property is also broadly non-claimable for a subsequent owner under the 2017 restriction, which leaves little to depreciate.
Does the 2017 rule mean no Division 40 claims at all on an established property?+
No — the restriction targets second-hand plant. Broadly, only new plant qualifies for subsequent owners, so the fittings that come with an established purchase are generally not claimable, but new plant you buy and install yourself can still be depreciated under Division 40.
Is depreciation still worth anything if my rental losses are quarantined?+
The deduction does not disappear — its timing changes. For an established property bought after 12 May 2026, losses (including the depreciation component) are carried forward against future rental profits or the eventual capital gain rather than offsetting salary each year. The benefit is deferred, not deleted.
How does Plintha know what depreciation a property supports?+
The model reads the building's physical age and applies Division 43 and Division 40 accordingly, then classifies the property as grandfathered, new build, or established post-budget, since the class determines how the resulting loss is treated. Assumptions are flagged as [ESTIMATE] or [ASSUMED] and can be overridden.
Run the numbers on a real property.
Paste any listing and Plintha computes the exact duty, the after-tax cashflow under the 2026–27 rules, and a verdict — free, no card, no sign-up.
Analyse a property — freeThis guide is general information, not financial, tax, credit or legal advice — it doesn't consider your objectives, financial situation or needs. Figures are computed at the rates current as of the date shown and can change. Confirm decisions with licensed professionals.