Capital Works Deductions (Division 43) Explained

General information only. This article provides general information for Australian rental property owners. It is not tax, legal or financial advice. Capital works rates depend on construction dates and building type, so confirm your position with a registered tax agent or quantity surveyor. Based on Australian Taxation Office (ATO) guidance current at the time of writing.

A capital works deduction is one of the largest deductions many property investors never claim in cash — because it's a write-off of the building's original construction cost, spread over decades. You don't spend a dollar in the year you claim it, yet it can be worth thousands. This guide explains what capital works (often called "Division 43" after the section of tax law, or the "building write-off") covers, the rate and period, which buildings qualify, and how to claim it. For the full set of rental deductions, see Rental Property Tax Deductions: What You Can Claim in Australia.

What capital works deductions are

Capital works deductions let you claim the cost of constructing the building and certain fixed, structural parts of your rental property, gradually, over many years. They cover:

• The original building construction cost
• Structural improvements, alterations and extensions (a new carport, garage, retaining wall, driveway, fence)
• Major renovations to a room or the property
• Some fixed items that form part of the structure

They are different from depreciating assets (Division 40) — the removable plant and equipment like carpet, blinds, ovens and air conditioners, which decline in value over their own effective lives. The building and what's fixed to it is capital works; the stuff inside that wears out is depreciation. (See repairs vs capital improvements for where everyday fixes sit.)

The rate and the period

For residential rental properties, the standard rate is 2.5% of the original construction cost per year, for 40 years from the date construction was completed.

So a building that cost $300,000 to construct could give a capital works deduction of around $7,500 a year — every year for four decades — even though you spent nothing in cash that year.

There's also a 4% over 25 years rate, but for residential rental property it applies only to a narrow historical window and to certain building types. In practice, almost all residential rental capital works are at 2.5% over 40 years.

Which buildings qualify (the construction dates)

Eligibility turns on when construction began:

• Residential rental construction that began after 15 September 1987 → 2.5% per year over 40 years.
• Residential rental construction that began between 18 July 1985 and 15 September 1987 → the older 4% / 25-year rate applied (those 25-year periods have now generally ended).
• Construction that began on or before 17 July 1985 → generally no capital works deduction for the original building.

Structural improvements (fences, retaining walls, sealed driveways) made after 26 February 1992 are claimable in their own right, on the same 2.5% / 40-year basis from when that work was completed.

Two important points: the building must be rented or genuinely available for rent for you to claim, and your total capital works deductions can't exceed the actual construction expenditure. You also claim only from the date construction was completed, not while it's being built.

You need evidence of the construction cost

To claim, you need to know the actual construction cost — not the purchase price of the property. If you built it or have the builder's figures, use those. If you bought an established property and don't know the original construction cost (which is common), an appropriately qualified person — a quantity surveyor — can estimate it in a tax depreciation schedule.

ledger.rent is not a quantity surveyor and doesn't produce these schedules. For the schedule itself, the established Australian providers are firms like BMT, Duo Tax and Washington Brown. What ledger.rent does is give you a place to record the schedule and track the deductions it generates each year, so the capital works and depreciation figures flow into your records and nothing is missed at tax time. The cost of the schedule is itself tax deductible.

How capital works interacts with capital gains tax

One catch worth knowing for when you sell: capital works deductions you've claimed (or were entitled to claim) generally reduce your cost base for capital gains tax. In effect, claiming the building write-off each year can increase the capital gain you're taxed on at sale. For most investors the yearly deduction is still well worth taking, but it's a reason to keep clean records of what you've claimed — and to factor it into any sale decision with your accountant.

Capital works in one minute

• It's the building write-off: 2.5% of original construction cost, per year, for 40 years (residential, construction after 15 Sept 1987).
• Different from depreciating assets (the removable plant and equipment inside).
• You need evidence of the construction cost — a quantity surveyor can estimate it; the schedule fee is deductible.
• It reduces your CGT cost base when you sell, so keep records.
• The property must be rented or genuinely available for rent.

Track your capital works and depreciation in one place

Once you have a depreciation schedule, the deductions need to flow into your records every year. ledger.rent gives Australian investors a place to record the schedule, track capital works and depreciating-asset deductions per property, and export an accountant-ready summary at tax time.

Start your free trial · View the full deductions guide · Rental property tax checklist

Related: Rental Property Tax Deductions: What You Can Claim in Australia · Repairs vs Capital Improvements on a Rental Property · Rental Property Tax Deductions Checklist

Last updated: May 2026. Based on ATO guidance current at the time of writing (ATO "Capital expenses" and "Work out your capital works deductions"). Tax rules change; confirm the current position with a registered tax agent or quantity surveyor.