How One Australian Landlord Unlocked Thousands in Tax Deductions Through Strategic Property Upgrades

For landlords across Australia, upgrading an older investment property isn’t just about improving tenant appeal—it’s also a golden opportunity to maximise depreciation claims. In this case study, we explore how one landlord transformed a 1994-built rental property and leveraged both Division 43 and Division 40 of the Income Tax Assessment Act to claim significant deductions, including immediate write-offs for scrapped assets 

📍 The Property: A 1994-Built Rental in Suburban Brisbane 

Sarah, a long-term property investor, owned a three-bedroom brick veneer home built in 1994. While the structure was solid, the interiors were dated and lacked modern appeal. In 2024, she undertook a targeted renovation to boost rental yield and long-term capital growth. The works were completed on 1st July 2024. 

🔧 Renovation Scope (2024) 

Sarah’s upgrades included: 

• Full kitchen renovation ($28,000) 

• Bathroom upgrade ($18,000) 

• Addition of a small timber deck ($12,000) 

• Construction of a carport ($15,000) 

Total renovation cost: $73,000 

Sarah had retained records for most of the works through her builder, but for a few items where receipts were missing or the invoices were for lump sums, her quantity surveyor was able to estimate costs using industry benchmarks and construction data. These estimates were included in her tax depreciation schedule, ensuring compliance and maximised deductions. 

💡 Depreciation Strategy: Scrapping, Division 43 & Division 40 

Sarah engaged a qualified quantity surveyor to prepare a comprehensive tax depreciation schedule. Here’s how she structured her claims: 

🧱 Step 1: Scrapping Original Division 43 Assets 

Division 43 covers capital works—structural elements of a building. Since Sarah’s property was built in 1994, it qualified for Division 43 deductions at 2.5% per annum over 40 years. 

When Sarah removed the original kitchen and bathroom, she was entitled to claim an immediate deduction for the written-down value of the structural components she scrapped. 

✂️ Scrapping Calculation Example 

Let’s assume the original kitchen and bathroom had a combined construction cost of $20,000 in 1994. 

• Years claimed: 1994 to 2024 = 30 years 

• Depreciation claimed: 2.5% × 30 years = 75% 

• Written-down value: 25% × $20,000 = $5,000 

Sarah claimed this $5,000 as an immediate deduction in the 2024–25 financial year. 

🏗️ Step 2: Claiming New Division 43 Assets 

The new kitchen, bathroom, deck, and carport all qualify as capital works under Division 43. These are depreciated at 2.5% per annum over 40 years. 

🧮 Division 43 Depreciation Example 

 Sarah now claims $1,690 annually under Division 43 for the new structural improvements. 

🛋️ Step 3: Claiming Division 40 Assets (Plant & Equipment) 

Division 40 covers removable assets like appliances, fittings, and equipment. Sarah’s kitchen and bathroom upgrades included several new Division 40 items: 

• Oven: $2,000 

• Cooktop: $1,200 

• Rangehood: $800 

• Dishwasher: $1,500 

• Heated Towel Rails: $1,100 

• Exhaust fan: $290 

Total Division 40 assets: $6,900 

These assets are depreciated at a percentage based on their effective life as determined by the ATO. For example: 

 Sarah claimed $1,554 in the first year for Division 40 assets, with higher deductions in subsequent years due to the diminishing value method. 

🧮 Total Depreciation Snapshot (2024–25) 

🏛️ What About the Original 1994 Structure? 

Here is the kicker: Sarah still claims depreciation on the remaining original structure from 1994. Assuming the original build cost was $120,000, and only $20,000 worth of structure was scrapped, she retains: 

• Remaining structure: $100,000 

• Written-down value after 30 years: 25% × $100,000 = $25,000 

• Annual deduction: 2.5% × $100,000 = $2,500/year 

This means Sarah continues to claim $2,500 annually for the original structure, in addition to the new Division 43 and Division 40 claims. 

📈 Long-Term Impact 

Over the next 10 years, Sarah’s total depreciation claims could look like this: 

 Estimated 10-year total: $48,599 in depreciation deductions 

🧠 Key Takeaways for Landlords 

• ✅ Scrapping deductions allow you to immediately write off the remaining value of removed structural elements. 

• ✅ Division 43 covers new structural improvements like decks, carports, kitchens, and bathrooms. 

• ✅ Division 40 lets you claim depreciation on appliances and fittings. 

• ✅ You can continue claiming depreciation on the original structure, even after partial upgrades. 

• ✅ A tax depreciation schedule from a qualified quantity surveyor is essential to maximise claims. 

• ✅ Missing receipts? Quantity surveyors can estimate costs using industry data to ensure compliance. 

📣 Final Thoughts 

For landlords with older properties, strategic renovations—like Sarah’s in 2024—can unlock thousands in tax savings. By understanding how Division 43 and Division 40 work, and leveraging scrapping deductions, you can turn a simple upgrade into a powerful financial advantage. 

If you are planning a renovation, engage a quantity surveyor early. Even if some receipts are missing, professional estimates can ensure every dollar spent is working harder for your portfolio. Get Your Quote Here or call 1300 922 220.