Capital Works Deductions and Investment Properties

You can claim capital works deductions for construction costs for a rental property that satisfies certain conditions.


·         Capital works deductions are income tax deductions that can be claimed for the expenses such as:

o    building construction costs

o    the cost of altering a building

o    the cost of capital improvements to the surrounding property.

Note: You can only claim a deduction for the capital works on residential rental properties if the properties were built after 17 July 1985.

·         If you own a rental property, you may be able to claim a deduction for the construction costs of:

o    buildings

o    extensions, such as a garage or patio

o    alterations, such as adding an internal wall, kitchen renovations or bathroom makeovers

o    structural improvements – such as a gazebo, carport, sealed driveway, retaining wall or fence.

Preliminary expenses such as architect fees, engineering fees, surveying fees, foundation excavation expenses and costs of building permits also form part of construction expenditure.

The rate of deduction, and the number of years you claim it for, are determined by the type of construction and the date construction commenced.

Limits to a claim

You can only claim a deduction for those periods during the year you used your rental property for income producing purposes, not when you used the property for private purposes.

·         What you need to know to work out your claim

As a general rule, you can claim a capital works deduction for the cost of construction for 40 years from the date the construction was completed. However, to make sure that you are eligible, you must have all of the following:

o    details of the type of construction

o    the date construction commenced

o    the date construction was completed

o    the construction cost (not the purchase price)

o    details of who carried out the construction work

o    details of the period during the year that the property was used for income producing purposes.

Capital works expenses you incur form part of the cost base of your property for capital gains tax purposes. If you claim a capital works deduction, you will need to take this into account when you work out your capital gain or loss.

If it is not possible to determine the actual construction costs, you can obtain an estimate from a quantity surveyor or other independent qualified person. You can claim a deduction for the cost of the estimate.

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Jason Gwerder
Sunday, 10 November 2019

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