Division 40 is the section of the Income Tax Assessment Act that deals with plant and equipment depreciation. In the context of rental properties, it covers the removable or mechanical items inside the property, such as air conditioners, dishwashers, ovens, carpets, blinds, ceiling fans, hot water systems, and smoke alarms.
These items have a limited useful life and lose value over time through wear and tear. Division 40 lets you claim that decline in value as a tax deduction each year.
How It Works
Each asset covered by Division 40 has an effective life determined by the ATO. A carpet, for example, has an effective life of 10 years. A split-system air conditioner has an effective life of 10 years. You claim the cost of the asset spread over its effective life using either the diminishing value method or the prime cost method.
For properties purchased after 9 May 2017 where the property is second-hand, there are restrictions. You generally cannot claim Division 40 deductions on existing plant and equipment that was already in the property when you bought it. You can still claim on brand-new items you install yourself.
Division 40 vs Division 43
The key difference is simple: Division 40 covers items you could theoretically remove from the property (appliances, fixtures, carpets), while Division 43 covers the building structure itself (walls, roof, plumbing). Both are forms of depreciation, but they have different rules and rates.
Why It Matters for Landlords
Division 40 deductions can add up quickly, especially in well-fitted-out properties or when you replace items like carpets, blinds, or appliances. Every time you install something new in your rental property, it may qualify for a Division 40 deduction. Keeping records of what you install and when is essential for claiming the full amount. For a full walkthrough, see our guide on how to calculate depreciation on your rental property.
propkt helps you track individual asset purchases against each property, making it straightforward to record new items and keep your depreciation records current. Try the depreciation calculator for a quick estimate.