What are capital works deductions?

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

As outlined by the Australian Taxation Office there are two categories that make up 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 general 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 that may have been made during a renovation within the relevant dates.

In a residential property, capital works deductions cover the following items:

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

Some common items in commercial properties that can be claimed as capital works deductions include:

  • Bricks, mortar, walls, flooring, roofing and wiring
  • Sinks, tiles, basins and toilet bowls
  • Mezzanines
  • Ducting for air conditioning

As a general rule, any residential building where construction commenced after 15 September 1987 will entitle their owner to capital works deductions at a rate of 2.5 percent per year for up to forty years. In a commercial building, capital works deductions generally apply to buildings where constructed commenced after the 21st of August 1984.

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

If you need further assistance around capital works deductions feel free to give us a call or contact us here.