Rental Properties – Claiming Capital Works Deducations

The types of capital work deductions you can claim and what you need in order to claim them.

What are capital works deductions?
Capital works deductions are the following expenses you pay for which you can claim an income tax deduction:

  • building construction costs the cost of altering a building
  • the cost of capital Improvements to the surrounding property.

(You can only claim a deduction for the capital works on residential rental properties you built after 17 July 1985)

What can you claim?
If you own a rental property, you may be able to claim a deduction (usually at the rate of 2.5% per year in the 40 years following construction) for the construction cost of:
buildings extensions, such as a garage or patio alterations, such as adding an internal wall, kitchen renovations or bathroom makeovers structural improvements – such as a gazebo, carport, sealed driveway, retaining wall or fence.

What do you need to know to work out your claim? As a general rule, you can claim a deduction for the cost of constructing a residential rental property over 40 years from the date the construction was completed. However, to be sure you get your claim right, you must have all of the following:

  • the date construction commenced
  • details of the type of construction
  • the date construction was completed
  • details of who carried out the construction work
  • the construction cost (not the purchase price)
  • 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.