Capital Works Deductions Fully Explained

UNDERSTANDING tax depreciation lingo can sometimes be confusing but as an investor, it’s important that you have a good understanding of the depreciation deductions you’re entitled to claim – to ensure you’re getting the most out of your investment property.

As outlined by the Australian Taxation Office there are two categories that comprise depreciation deductions – division 43 capital works deductions and division 40 plant and equipment depreciation. 

Capital works deductions are income tax deductions an investor can claim for the wear and tear that occurs to the structure of the property and items considered to be permanently fixed to the property.

This includes any structural improvements which may have been made during a renovation within the relevant dates.

For a Residential property, capital works deductions cover the following items:

  • Bricks, mortar, walls, flooring and wiring
  • Built-in kitchen cupboards
  • Sinks, basins, baths and toilet bowls
  • Clothes-lines
  • Doors and door furniture (handles, locks etc.)
  • Driveways
  • Fences and retaining walls

Some common items in Commercial properties which can be claimed as capital works deductions include:

  • Bricks, mortar, walls, flooring, roofing and wiring
  • Doors and door furniture (handles, locks etc.)
  • Sinks, tiles, basins and toilet bowls
  • Driveways
  • Fences and retaining walls
  • Mezzanines
  • Ducting for air conditioning

As a general rule, any residential building where construction commenced after the 15th of September 1987 will entitle their owner to capital works deductions at a rate of 2.5 per cent per year for up to forty years.

For a commercial building, capital works deductions generally apply to buildings where construction commenced after the 21st of August 1984.

Bottom Line: If your property was constructed prior to these dates, it’s still important to get in touch with a qualified Quantity Surveyor – because often these buildings will have undergone some form of renovation which can result in capital works deductions for the owner.

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