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  • Construction cost

    Evidence of the construction cost must be provided by either of the following:

    • precise documentation of the construction costs such as receipts
    • a report written by an appropriately qualified person.

    Note: The following items cannot be used as the construction cost:

    • the purchase price of the building and land
    • the insured cost
    • the replacement cost.

    If you were the owner builder

    If you carried out the construction as an owner builder, the value of your contribution to the works does not form part of the construction cost. This includes:

    • your labour and expertise
    • any notional profit element – that is, an amount you might consider as a profit margin on the construction cost.

    Obtaining the construction information

    If you carried out the construction or contracted a builder to do so, you should make sure you keep detailed records of the construction costs.

    If you purchased the property and do not have a record of the construction costs (for example, where the vendor did not provide them) you will need to obtain this information from either the previous owner or an appropriately qualified person. This could be a:

    • quantity surveyor
    • clerk of works, such as a project organiser for major building projects
    • supervising architect who approves payments at project stages
    • builder experienced in estimating construction costs of similar building projects.

    You can claim a deduction for your costs in obtaining this information from an appropriately qualified person in the year you pay it.

    Quantity surveyor reports can also include a schedule of depreciable assets (capital allowances). A separate deduction for the decline in value of depreciating assets in a rental property can be claimed:

    • if you purchased the rental property before 7.30pm (AEST) on 9 May 2017 – it doesn't matter whether the property was brand new or not, or
    • if the depreciating asset is brand new - purchased at or after 7.30pm (AEST) on 9 May 2017 as part of your brand new property or which you purchased subsequently for your existing (non-new) property, or
    • if you purchase the property on or after 7.30pm (AEST) on 9 May 2017 to provide residential accommodation, it (i.e. the property) has to be brand new or substantially renovated if no one previously claimed any depreciation deductions on the asset, and:    
      • either no one lived in the property when you acquired it, or
      • if anyone lived in the property after it was built or renovated, you acquired it within six months of the property being built or renovated, or
       
    • the property does not provide residential accommodation, or
    • the asset is used in carrying on a business, or
    • the entity claiming depreciation is a:    
      • corporate tax entity
      • superannuation plan other than a self-managed superannuation fund
      • public unit trust
      • managed investment trust
      • unit trust or partnership whose members are any of the entities in this dot-point.
       

    If you are a vendor disposing of capital works begun after 26 February 1992 and were allowed deductions for those capital works, you should provide the buyer with a capital works notice containing information to allow them to work out their capital works deduction. The notice should be provided within six months following the income year that the disposal occurred or a further period allowed by the ATO.

    Where the property was not used to gain rental income, the vendor disposing of the property does not need to provide the purchaser with a notice. In this situation the purchaser can obtain an estimate, usually from an appropriately qualified person.

    Note: Remember to obtain your construction costs report as soon as possible, as these reports can take a long time to prepare. If you obtain a report after you lodge your tax return, you can amend your tax return at a later date. However, there is a time limit on amending tax returns for which we have already issued a notice of assessment.

    See also:

      Last modified: 08 Oct 2018QC 21620