The two parts
- Capital works, often called Division 43. This is the construction cost of the building: walls, roof, slab, built in cabinetry, driveway. For residential buildings it is generally claimed at 2.5% a year over forty years.
- Plant and equipment, often called Division 40. These are items that wear out faster and can be removed: carpet, blinds, the hot water system, air conditioning, the oven and the dishwasher. Each has an effective life set by the Australian Taxation Office.
What changed in 2017
For residential property bought under a contract entered into after 7.30pm on 9 May 2017, investors can generally no longer claim depreciation on plant and equipment that has been used before. In practice that means the existing fittings in an established property. The building itself can still be claimed if it is young enough.
A brand new property is not caught by that rule, because nothing in it has been used before. The first owner can generally claim the plant and equipment as well as the capital works. That is the gap between new and established, and it is widest in the early years, when plant and equipment deductions are largest.
A sense of scale
As an illustration only: on construction costs of $350,000, capital works at 2.5% comes to as much as $8,750 a year. Plant and equipment is on top of that and is weighted toward the first few years. The real figures come from a schedule prepared for your property, and not every dollar of a build contract qualifies.
How this sits with the 2027 negative gearing change
In the May 2026 Budget the government announced that from 1 July 2027, losses on established residential property bought after 7.30pm AEST on 12 May 2026 can be deducted against residential property income but not against other income such as wages. New builds can continue to be negatively geared. Depreciation is often a large part of what makes a property show a loss on paper, so for a new build the two work together.
This was announced policy at the time of writing. Confirm the current law with a registered tax agent before you rely on it.
Getting a schedule
- Engage a quantity surveyor once the build is complete. They prepare a depreciation schedule that covers the life of the property.
- Give the schedule to your registered tax agent with your first tax return for the property.
- Keep the building contract and the final invoices. They are the evidence of what the construction cost.
The part people forget
Depreciation reduces your taxable income now. Capital works deductions also reduce the cost base of the property, which can increase the capital gain when you sell. It is a timing benefit as much as a saving. A registered tax agent can show you both sides for your situation. We do not give tax advice.