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  • What can you claim?

    If you own a rental property, you may be able to claim a deduction for the construction costs 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.

    Preliminary expenses such as architect fees, engineering fees, surveying fees, foundation excavation expenses and costs of building permits also form part of construction expenditure.

    The rate of deduction, and the number of years you claim it for, are determined by the type of construction and the date construction commenced.

    Limits to a claim

    You can only claim a deduction for those periods during the year you used your rental property for income producing purposes, not when you used the property for private purposes.

    Example

    On 1 March 2018, Meg purchased a rental property for $300,000 and immediately rented it out. Meg obtained a report from a quantity surveyor stating:

    • construction of the property commenced in February 2003
    • the property was a residential townhouse
    • construction was completed in November 2003
    • the townhouse was built by a developer
    • the estimated cost of constructing the townhouse was $200,000.

    Meg claims a capital works deduction in her 2018 tax return for her rental property based on the estimate of the construction costs she obtained from the quantity surveyor. However, she only claims a deduction for that part of the year her property was available for rent (1 March to 30 June 2018). The rate of deduction she claims was 2.5% as construction of her residential property started after 15 September 1987.

    Her annual capital works deduction was calculated as follows:

    $200,000 x 2.5% (see Note)*=$5,000

    Note: See the date construction commenced for different rates of reduction.

    As the property was only used for income producing purposes for 122 days in 2018, her 2017–18 claim was calculated as follows:

    $5,000 × (122 ÷ 365) = $1,671

    End of example

    What you need to know to work out your claim

    As a general rule, you can claim a capital works deduction for the cost of construction for 40 years from the date the construction was completed. However, to make sure that you are eligible, you must have all of the following:

    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.

    If it is not possible to determine the actual construction costs, you can obtain an estimate from a quantity surveyor or other independent qualified person. You can claim a deduction for the cost of the estimate.

    See also:

      Last modified: 08 Oct 2018QC 21620