Division 40 covers plant and equipment depreciation for eligible assets in an income-producing property. These assets include carpets, blinds, ovens and air conditioning units. They have a limited effective life and lose value through use, wear and age.
Property investors can claim this decline in value as a tax deduction. The deductions reduce taxable rental income and can improve cash flow during property ownership.
What Is Division 40?
Division 40 is part of the Income Tax Assessment Act 1997. It lets property investors claim the decline in value of eligible plant and equipment, such as ovens, carpets and blinds, used to earn rental income. For how it compares with capital works, see Division 40 vs Division 43.
Which Depreciating Assets Qualify Under Division 40?
Division 40 applies to depreciating assets with a limited effective life. Each item has its own value, classification and depreciation rate.
Common Division 40 assets include:
- Carpets and floating floors
- Blinds and curtains
- Ovens, cooktops and rangehoods
- Dishwashers
- Hot water systems
- Air conditioning units
- Ceiling and exhaust fans
- Smoke alarms
- Security systems
- Pool filtration equipment
Eligibility depends on who owns the asset and how they use it. The asset’s age and purchase date also affect its tax treatment.
A tax depreciation schedule records each eligible asset. This helps property investors apply the correct effective life and claim depreciation accurately.
How Effective Life Determines Division 40 Deductions
An asset’s effective life is how long it is expected to stay useful for earning income: the shorter it is, the faster you can claim it. For how effective lives are set and where to find them, see our effective life guide.
Prime Cost And Diminishing Value Methods
You can claim Division 40 assets using the prime cost method (the same deduction each year) or the diminishing value method (larger deductions in the early years). See Division 40 vs Division 43 for a worked example of each.
Immediate Deduction And Immediate Write-Off Rules
Some Division 40 assets qualify for an immediate deduction. An asset costing $300 or less must meet all ATO conditions before a property investor can claim it.
The asset must:
- Cost $300 or less
- Mainly produce non-business assessable income
- Not form part of a set costing more than $300
- Not be substantially identical to assets that cost more than $300 together
An eligible asset could include a low-cost smoke alarm or small appliance. Investors should keep the invoice and the date the asset became ready for use.
Example: you buy a $250 smoke alarm for your rental property. It isn’t part of a set, and you haven’t bought identical items that together cost more than $300. You can claim the full $250 in the year it is installed.
The $300 immediate deduction differs from the instant asset write-off for eligible businesses. Property investors should not treat these tax deductions as the same concession.
How the Low-Value Pool Works
Property investors can place eligible low-cost assets valued below $1,000 into a low-value pool. Some assets with an adjustable value below $1,000 can also qualify.
Assets added to the pool generally depreciate at 18.75% in the first income year. A rate of 37.5% applies to the remaining balance in later years.
The pool combines eligible assets in one calculation. Once an investor adds an asset, it generally stays in the pool until fully claimed or disposed of.
Example: you buy new blinds for $800 and add them to the low-value pool. In the first year you claim 18.75%, which is $150. In the second year you claim 37.5% of the remaining $650, which is $243.75.
Division 40 Rules For Second-Hand Assets
Property investors generally cannot claim Division 40 deductions for used plant and equipment acquired with a second-hand residential property after 7:30 pm on 9 May 2017, according to the Treasury Laws Amendment (Housing Tax Integrity) Act 2017. The rule also applies when an owner first rents out a former home after 30 June 2017.
Investors can still claim Division 40 deductions when:
- They buy and install new plant and equipment
- They buy a new residential property with unused assets
- They own eligible assets in a commercial property
- They hold the property through an excluded entity, such as a company
- They acquired the residential property before the restriction began and rented it out before 1 July 2017
For example, an investor usually cannot claim an oven included with a second-hand home, even if it was installed by the previous owner. However, they can claim a new oven bought and installed after purchase.
Example: in 2026 Priya buys an established apartment that comes with a three-year-old dishwasher and carpets. She can’t claim depreciation on either, because they were already used. Later that year she replaces the oven with a new one costing $1,200. She can claim the new oven over its effective life.
These rules only restrict certain second-hand assets. They do not remove every tax depreciation deduction available for an established property. Investors may still have an eligible deduction for other amounts where the law allows and their records support the claim.
Plant And Equipment Depreciation For Commercial Property
The residential rules for second-hand assets generally do not apply to commercial property. Owners and tenants can claim eligible equipment they own and use to produce assessable income.
Example: a café owner leasing a shop buys a second-hand coffee machine for $6,000. Because it is used in a business in commercial premises, the second-hand residential rule doesn’t apply, and the owner can claim the machine over its effective life. (A small business using the simplified depreciation rules could instead write it off at once, because it costs under $20,000.)
Commercial Property Type | Common Division 40 Assets |
|---|---|
Office | Desks, chairs, blinds, carpets and computer equipment |
Retail shop | Shelving, counters, security systems and display equipment |
Restaurant or café | Ovens, refrigerators, coffee machines and exhaust systems |
Warehouse | Racking, forklifts, cranes, industrial equipment and security equipment |
Medical practice | Examination equipment, furniture and sterilising units |
Hotel or motel | Beds, televisions, curtains, air conditioning units and appliances |
Using Division 40 Assets For A Taxable Purpose
An investor can claim depreciation once an asset is ready to produce assessable income. If the asset also has a private use, the investor must reduce the claim.
Investors should keep records showing:
- The asset’s purchase price
- The purchase and installation dates
- When the asset became ready for use
- The share of private and income-producing use
- Any repairs, upgrades or ownership changes
- The sale, disposal or replacement date
For example, an air conditioning unit could serve both private and rented areas. The investor can only claim the income-producing share. Good supporting documentation helps prove the cost, ownership and taxable purpose.
Example: a $2,000 air conditioner cools both a rented granny flat and the owner’s own home, and 60% of its use is for the rented area. If its decline in value for the year is $200, the owner can claim 60% of that, which is $120.
Why Property Investors Use A Tax Depreciation Schedule
A tax depreciation schedule records eligible Division 40 assets and their future deductions. A qualified quantity surveyor identifies the assets, estimates their value and applies the correct effective life and method.
The schedule also records restricted second-hand assets, immediate deductions and low-value pool treatments. Property investors can give the completed schedule to their accountant for use in each tax return.
How Division 40 Benefits Property Investors
Division 40 allows property investors to claim the decline in value of eligible plant and equipment assets, and a tax depreciation schedule can also cover Division 43 items for an investment property or rental property to support capital allowance claims when investors claim tax deductions. Division 43 covers structural elements of properties, with deductions generally fixed at 2.5% over 40 years. These depreciation deductions reduce taxable rental income and taxable income and improve cash flow without creating a new annual expense.
A qualified quantity surveyor can identify eligible assets, structural elements, and structural improvements, estimate construction costs or construction expenditure where needed, separate capital works from plant and equipment for depreciation claims, and prepare an accurate tax depreciation schedule. Contact Duo Tax on 1300 185 498 or get a free quote today to see what you could claim.
