Rental Property Claiming Capital Works Deduction

Australian Tax Office Capital Works Deduction
 

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Rental Property Claiming Capital Works Deduction

"Work out your capital works deductions" is a guide provided by the Australian Taxation Office (ATO) that outlines the process for claiming capital works deductions for construction costs related to a rental property.


Capital works deductions can be claimed for the construction costs of certain capital works such as buildings, extensions, alterations, and structural improvements made to a rental property. These deductions are claimed over a number of years, typically at a rate of 2.5% per year for 40 years for properties constructed after 15 September 1987, or 4% per year for 25 years for properties constructed before this date.


The guide explains how to calculate capital works deductions, what types of construction costs are eligible, and provides examples to help taxpayers understand how to accurately claim these deductions on their tax return. It also outlines special rules and considerations for claiming deductions on different types of properties.


Overall, the guide serves as a resource for property owners and investors to understand and maximise their tax deductions related to capital works on rental properties.


Table: Capital works deductions for buildings and structural improvements

Type of construction

Construction commenced after

Applicable years and deduction rate per year

You intend to use the building on completion to provide short-term accommodation to travellers in:

  • apartment buildings in which you own or lease at least 10 apartments
  • units or flats
  • hotels
  • motels
  • guest houses with at least 10 bedrooms.

21 August 1979

22 August 1979 to 21 August 1984 – 2.5%

22 August 1984 to 15 September 1987 – 4%

16 September 1987 to 26 February 1992 – 2.5% (where the construction related to certain pre-16 September 1987 contracts, the rate is 4%)

27 February 1992 onwards – 4%

Building intended to be used on completion for non-residential purposes such as a shop or office.

19 July 1982

20 July 1982 to 21 August 1984 – 2.5%

22 August 1984 to 15 September 1987 – 4%

16 September 1987 onwards – 2.5%

Any building intended to be used on completion for residential purposes or to produce income.

17 July 1985

18 July 1985 to 15 September 1987 – 4%

16 September 1987 onwards – 2.5% (where the construction related to certain pre-16 September 1987 contracts, the rate is 4%)

Structural improvements intended to be used on completion for residential purposes or to produce income.

26 February 1992

27 February 1992 onwards – 2.5%

Environment protection earthworks intended to be used on completion for residential purposes or to produce income.

18 August 1992

18 August 1992 onwards – 2.5%

Any capital works used to produce income, even if they were not intended to be used for that purpose.

For pre-1 July 1997 works only, the capital works must have been intended for use for specified purposes at the time of completion.

30 June 1997

The capital works must actually be used in a deductible way in the income year in which the deduction is claimed (see above onwards rates details for each type of construction).

2.5% is deductions for 40 years and 4% for 25 years. 

The capital works deductions are only available when the construction of the relevant capital works is completed and the building 


For more details, visit the ATO website.

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