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Cost base adjustments for capital works

Capital works deductions can't be included in the cost base or reduced cost base of an asset.

Last updated 29 June 2023

Capital works expenses you can claim as deductions against income can't be included in either:

There are 2 exceptions to this rule:

  • You acquired the asset at or before 7:30 pm (ACT time) on 13 May 1997 and incurred the capital works expense by 30 June 1999 – see the Guide to capital gains tax for more information about this situation.
  • You were unable to claim a deduction because you didn't know the full amount or exact nature of the construction expense – you can include the expense in your cost base or reduced cost base.

Example: adjusting cost for capital works

Brett purchased a residential rental property on 1 July 2004 for $150,000.

  • As part of the purchase he had non-deductible expenses of $20,000 for pest and building inspections, stamp duty and solicitor’s fees.
  • Over the next few years, Brett incurred deductible expenses of $33,000 for interest on money borrowed, council rates and deductible (non-capital) repairs.
  • In 2022 Brett decided to sell the property. Prior to the sale he spent $30,000 on major structural repairs to increase the value of the property. The repairs were completed on 1 October 2022.
  • On 1 February 2023 he sold the property. The real estate agent’s fees and solicitor’s fees for the sale of the property totalled $12,500.

The purchasing expenses of $20,000 and sale expenses of $12,500 are capital costs and not deductible. These are added to the cost base of the property.

The deductible expenses of $33,000 are not added to the cost base because Brett is able to claim deductions for them.

Brett can claim a capital works deduction for the major structural repairs:

  • at the depreciation rate for capital works of 2.5% per year (365 days)
  • for the period between completing the capital works and selling the property (124 days).

Therefore, Brett's deduction for the major structural repairs is:

  • $30,000 × 2.5% × 124 ÷ 365 = $255

When working out his cost base, Brett reduces the capital costs element by the amount that he was able to claim as a deduction:

Purchase price of property


Purchase-related costs


Capital costs (major structural repairs): $30,000 less capital works deduction ($255)


Sale-related costs


Cost base



End of example