Capital works allowance
The capital works allowance, or the building allowance as it is more commonly called, refers to the construction costs of the building itself including items such as concrete and brickwork.
Capital works deductions
Regarding residential properties, the general deductions are spread over a period of 25 or 40 years. When you purchase a property, keep in mind that the capital works deductions are not able to exceed the construction expenditure.
Also, no deductions are available until the construction has been completed if you are waiting on a new build to claim your deductions.
Deductions based on construction expenditure apply to capital works. Some examples are as follows;
- A building or an extension. Eg, adding a garage or a room
- Making structural improvements to the property
- Making alterations to the property
- A number of deductions you can claim depend on the type of construction and the date the construction commenced on the property.
Construction expenditure refers to the actual cost of constructing the building or extension. Deductions are possible on the expenses incurred in the construction of a building if you contract a builder to construct the building on your land.
However, there is construction expenditure that is not able to be claimed in deductions.
Some of these costs that are not included are listed below;
- The cost of the land which the property is built on
- The costs regarding landscaping
- Expenditure on clearing the land before the construction commencement
- Cost base adjustments
Cost base adjustments refer to figuring out the capital gain or capital loss from a rental property. It is possible that the cost base and reduced cost base of the property will need to be reduced to the extent that it includes construction expenditure in which you, as in investor, can claim in capital works deductions.