Tax Depreciation

What is tax depreciation?

Tax depreciation is a legitimate deduction against assessable taxable income, generated by an income producing property.

The Australian Tax office (ATO) recognises that the value of capital assets gradually reduces over time as the property approaches the end of its effective life.  These assets can be written off as a tax deduction – known as depreciation, resulting in the astute investor paying less tax.

The ATO stipulates that property investors can claim deductions on the following two elements of their investment property:

  • Division 43 – Capital Works Allowance
  • Division 40 – Plant and Equipment  

Capital Works Allowance

Capital Allowance Deductions (Division 43) are based on the historical construction cost of the building.  These deductions are generally spread over a period of 25 or 40 years depending on the age of the building.  The ATO stipulates as a general rule any property constructed after 18 July 1985 (residential) and 20 July 1982 (non-residential) is eligible for the construction write off allowance of either 2.5% or 4% for a period of 40 or 25 years from the date of construction.

Please see table below:


Deductions based on capital works covers aspects of the building; including the original construction, extensions, alterations and improvements of a structural nature. It includes additions such as a garage, patio, carport, fence or sealed driveway and renovations such as kitchen, bathroom or laundry.

The capital improvement works will qualify for the Division 43 allowance if construction commenced within the correct dates, see above table.

Plant and Equipment Depreciation

Plant and Equipment Depreciation (Division 40) covers assets that have a finite lifetime and fall in value over time as a result of wear and tear/age, these depreciate at a more rapid rate than the building.  It includes fixtures and fittings such as floor coverings, appliances, furniture, security systems, air conditioning units, hot water systems, ceiling fans etc. which are provided as part of the property.  The ATO specifies individual effective mobile > for all plant and equipment items and the depreciation available on each item is calculated accordingly.   Plant and equipment elements are re-valued and start a new tax effective life each time a property is purchased; regardless of when the carpets, curtains or other items of plant were purchased they are given a new value at the date of property settlement.