What is the Division 43 capital works deduction?

A flat 2.5% per year deduction on the original construction cost of a residential building (post-15-Sep-1987), claimable for 40 years from the date construction completed. Pre-1987 buildings get zero. Commercial buildings (post-20-Jul-1982 short-term traveller accommodation, manufacturing) can be 4% for 25 years.

Why can't I claim depreciation on second-hand fixtures?

The Housing Tax Integrity Act 2017 (effective 9 May 2017) blocks individual investors from claiming Division 40 depreciation on previously-used plant in residential rentals. You can still claim Division 43 capital works on the building shell, only Division 40 is blocked. New builds (off-the-plan) and commercial properties are unaffected.

Should I use IO or P&I for an investment loan?

Mathematically: IO leaves more cash in your pocket (you only pay interest) and maximises the deductible expense, but you don't build equity through principal reduction. P&I reduces the loan over time but the principal portion isn't deductible. Most investors use IO during the build-up phase and switch to P&I later, or run IO indefinitely if comfortable with the interest-only risk. APRA's serviceability buffer makes IO harder to qualify for.

How does land tax differ between states?

NSW: threshold $1,075,000 (2025) at general scale 1.6% + $100; premium 2% above $6.571M. VIC: very low threshold ($50k), aggressive surcharges for absentee owners (4%) and trusts. QLD: aggregates Australian-wide holdings since 30 June 2023. WA, SA, ACT, NT each have their own thresholds. Enter your actual state-revenue-office estimate.

What about main residence becoming an investment?

If you move out and rent your former home, the 6-year absence rule (ITAA 1997 s.118-145) lets you keep the CGT exemption for up to 6 years. Depreciation deductions are still allowed during this period for any plant you newly install. Track the cost base carefully, this calculator doesn't model the 6-year rule.

Calculator · FY 2026-27 brackets · Div 43 + Div 40

Investment Property & Negative Gearing Calculator

Rent in, expenses out, Div 43 capital works and plant depreciation applied. See your annual loss (or gain), the tax saving at your marginal rate, and after-tax cashflow projected over 10 years.

Purchase price (AUD) Property purchase price including stamp duty e.g. 800000

Deposit (AUD) Cash + costs you put in, the rest is the loan 20% deposit = 160000 on $800k

Interest rate (% pa) Current investment loan rate e.g. 6.3 (Big-4 IO standard 2025)

Weekly rent (AUD) Current market rent e.g. 600 (gross yield drops out below)

Other taxable income (AUD / yr) Salary, business, for marginal-rate calc e.g. 120000

Loan type Interest-only or principal+interest IO maximises deductible interest in early years

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Annual costs

Council rates ($/yr) Annual council/local government rates QLD ~$1.5k, NSW ~$2k, VIC ~$2.5k

Water rates ($/yr) Water service charges (tenant usually pays consumption) ~$1,000–1,200 / yr

Landlord insurance ($/yr) Building + landlord cover ~$1,500–2,500 / yr

Body corp / strata ($/yr) Quarterly fees × 4 house = 0; apartment = $3–7k typical

Repairs & maintenance ($/yr) Plumbing, electrical, painting, general fixes budget ~1% of property value

Property management fee (%) % of weekly rent collected (plus letting fee) 7–9% typical (excludes letting fees, advertising)

Land tax estimate ($/yr) State land tax above threshold, varies wildly NSW threshold $1,075k 2025; VIC $50k

Vacancy (weeks/yr) Weeks vacant each year (no rent) 2 weeks = ~96% occupancy

Depreciation (Division 43 + 40)

Construction cost (AUD) Original cost of the building shell (not land) quantity surveyor's report figure

Construction year Div 43 eligibility cutoff 15 Sep 1987+ residential → 2.5% × 40 yrs

Plant & equipment depreciation ($/yr) Annual Div 40 amount from QS report new property: ~$3–8k yr 1, tapers

Purchased post 9 May 2017? If yes + residential + second-hand fixtures → plant deduction blocked Housing Tax Integrity Act 2017

Projections

Projection years Years to project forward 10 is standard for buy-hold analysis

Capital growth (% pa) Property value appreciation 3–5% long-term Aussie capital cities

Rent growth (% pa) Annual rent indexation long-term ~CPI

Costs growth (% pa) CPI-style escalator on rates, insurance, etc. ~CPI 2.5–3.0%

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Year-by-year projection

Sources applied

Capital works deduction (Div 43) · ITAA 1997 Division 43 · 2.5% × 40 years for residential post-15-Sep-1987
Plant & equipment (Div 40) · ITAA 1997 Division 40 · second-hand block from 9 May 2017 for residential rentals (s.40-27)
Second-hand block · Treasury Laws Amendment (Housing Tax Integrity) Act 2017 · individuals cannot claim depreciation on previously-used plant in residential rentals
Interest deductibility · ITAA 1997 s.8-1 · interest on loans to acquire income-producing property is deductible
Negative gearing · ITAA 1997 s.4-15 · net rental loss reduces assessable income
FY 2025-26 brackets · ATO · 0/16/30/37/45% at $18,200 / $45,000 / $135,000 / $190,000
Medicare levy · 2% applied on full assessable income above shade-in threshold

Verified against ato.gov.au · Income Tax Assessment Act 1997

How the cashflow projection works

Annual rent: Weekly rent × (52 − vacancy weeks). Rent grows each year by the indexation assumption.
Interest deduction: Interest-only loans: rate × loan balance each year (deductible in full). P&I: amortising loan, but only the interest portion is deductible, the principal portion reduces the loan balance and is not an expense.
Operating costs: Council rates, water, insurance, body corp, repairs, property management fee (% of rent), land tax. All deductible. All grow by the cost-growth assumption.
Division 43 capital works: 2.5% × construction cost, but only if construction commenced after 15 September 1987. Pre-1987 buildings get nothing. This is a paper deduction, no actual cash spent.
Division 40 plant & equipment: Annual depreciation on ovens, carpet, blinds, hot-water systems, etc. If you bought the property second-hand after 9 May 2017, you can only claim plant that you buy and install yourself, not what was already there.
Net taxable position: Rent income minus all the above. Negative = you have a rental loss that reduces your taxable income. Positive = you're positively geared and add to taxable income.
Tax saved (or paid): Loss × your marginal rate (plus 2% Medicare). The higher your bracket, the more the loss is worth. After-tax cashflow = pre-tax cashflow + tax saved.

Frequently asked

What is the Division 43 capital works deduction?: A flat 2.5% per year deduction on the original construction cost of a residential building (post-15-Sep-1987), claimable for 40 years from the date construction completed. Pre-1987 buildings get zero. Commercial buildings (post-20-Jul-1982 short-term traveller accommodation, manufacturing) can be 4% for 25 years.
Why can't I claim depreciation on second-hand fixtures?: The Housing Tax Integrity Act 2017 (effective 9 May 2017) blocks individual investors from claiming Division 40 depreciation on previously-used plant in residential rentals. You can still claim Division 43 capital works on the building shell, only Division 40 is blocked. New builds (off-the-plan) and commercial properties are unaffected.
Should I use IO or P&I for an investment loan?: Mathematically: IO leaves more cash in your pocket (you only pay interest) and maximises the deductible expense, but you don't build equity through principal reduction. P&I reduces the loan over time but the principal portion isn't deductible. Most investors use IO during the build-up phase and switch to P&I later, or run IO indefinitely if comfortable with the interest-only risk. APRA's serviceability buffer makes IO harder to qualify for.
How does land tax differ between states?: NSW: threshold $1,075,000 (2025) at general scale 1.6% + $100; premium 2% above $6.571M. VIC: very low threshold ($50k), aggressive surcharges for absentee owners (4%) and trusts. QLD: aggregates Australian-wide holdings since 30 June 2023. WA, SA, ACT, NT each have their own thresholds. Enter your actual state-revenue-office estimate.
What about main residence becoming an investment?: If you move out and rent your former home, the 6-year absence rule (ITAA 1997 s.118-145) lets you keep the CGT exemption for up to 6 years. Depreciation deductions are still allowed during this period for any plant you newly install. Track the cost base carefully, this calculator doesn't model the 6-year rule.