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Edited version of private ruling
Authorisation Number: 1011571803685
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Ruling
Subject: Rental property expenses - capital works deduction
Are you entitled to a capital works deduction for your share of the construction expenditure for the conversion of a warehouse into apartments?
Yes.
This ruling applies for the following period:
Year ending 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You recently bought an apartment which is currently being leased out.
The apartment is a warehouse conversion apartment.
The conversion work started after 15 September 1987.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 43-10.
Income Tax Assessment Act 1997 Subsection 43-70(1).
Income Tax Assessment Act 1997 Subsection 43-25(2).
Reasons for decision
Section 43-10 of the Income Tax Assessment Act 1997 (ITAA 1997) operates generally to provide a deduction for capital expenditure on capital works used to produce assessable income. A deduction under section 43-10 of the ITAA 1997 is based on the amount of construction expenditure. This is defined in subsection 43-70(1) of the ITAA 1997 as capital expenditure incurred in respect of the construction of the capital works.
Capital works includes buildings and structural improvements or an extension, alteration or improvement to a building.
Subsection 43-25(2) of the ITAA 1997 provides that the rate of deduction for capital works which began after 15 September 1987 for a residential rental property is 2.5%.
In your case, your investment apartment was originally a warehouse which was converted into an apartment block. The conversion work started after 15 September 1987. The warehouse conversion is considered to be an improvement to the building. You are therefore entitled to a capital works deduction for your share of the construction expenditure of the warehouse conversion as the conversion work started after 15 September 1987.
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