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  • Costs you cannot claim



    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Some costs that are not included in construction expenditure are:

    • the cost of the land on which the rental property is built
    • expenditure on clearing the land prior to construction
    • expenditure on landscaping.

    Some of this expenditure may form part of the cost base of the property for capital gains tax purposes. For more information, see the publication Guide to capital gains tax.

    Example: Capital works deduction (special building write-off)

    The Perth property acquired by the Johnsons on 20 July 2000 was constructed in August 1991. At the time they acquired the property it contained the following structural improvements.


    Construction date

    Retaining wall

    September 1991

    Concrete driveway

    January 1992

    In-ground swimming pool

    July 1992

    Protective fencing around the pool

    August 1992

    Timber decking around the pool

    September 1992

    In a letter to the Johnsons, a supervising architect values the construction cost of the rental property for special building write-off purposes at $115,800. This includes the cost of the house, the in-ground swimming pool, the protective fencing and the timber decking. Whilst the retaining wall and the concrete driveway are structural improvements, they were constructed before 26 February 1992 and were not included in the $115,800 valuation. Therefore, they cannot form part of the construction cost.

    The Johnsons can claim a 2.5 per cent per annum deduction based on the construction costs for capital works deduction (special building write-off) purposes. As they did not acquire the property until 20 July 2000, the deduction is allowed for the 346 days from 20 July 2000 to 30 June 2001. The maximum deduction for 2000-2001 would be as follows:

    Construction cost × rate × portion of year = deductible amount

    $115,800 × 2.5% × (346 ÷ 365) = $2,745

    End of example

    For more information about construction expenditure and capital works deductions (special building write-off), see Taxation Ruling TR 97/25 - Income tax: property development: deduction for capital expenditure on construction of income producing capital works, including buildings and structural improvements.

    Last modified: 28 Jul 2003QC 16187