You can deduct certain kinds of construction expenditure. In the case of residential rental properties, the deductions would generally be spread over a period of 25 or 40 years. These are referred to as capital works deductions (formerly special building write-off). Your total capital works deductions cannot exceed the construction expenditure. No deduction is available until the construction is complete.
Deductions based on construction expenditure apply to capital works such as:
- a building or an extension – for example, adding a room or garage
- alterations – such as removing or adding an internal wall, or
- structural improvements to the property – for example, adding a pergola, patio, carport, sealed driveway, retaining wall or fence.
Landscaping is not a structural improvement.
Deductions can be claimed only for the period during the year that the property is rented or is available for rent.
If you can claim capital works deductions, the construction expenditure on which those deductions are based cannot be taken into account in working out any other types of deductions to be claimed, such as deductions for decline in value of depreciating assets.