| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012690276778
Ruling
Subject: Rental - capital improvement
Question
Are you entitled to a capital works deduction for the work carried out installing a stormwater management system on your rental property?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
You and your spouse purchased a property which has always been available for rent.
You received a letter from the council stating that a complaint had been lodge alleging stormwater flowing from your property to neighbouring properties.
An inspection of your property by council revealed that stormwater from the building and sealed surfaces were insufficient and poorly managed, permitting collected stormwater to flow across the ground surface and into the neighbour's yard potentially causing damage.
You were given 28 days to rectify the issue.
It was determined that when rain falls on your property in extreme or stormy conditions it falls onto the garden beds and flows over a grass area and onto neighbouring properties. There was no existing stormwater management system on the property.
You engaged a plumber to carry out work installing a stormwater management system on the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Division 43
Reasons for decision
Division 43 of the ITAA 1997 allows a deduction for capital expenditure incurred in constructing capital works including building and structural improvements where a property is used for income producing purposes. The deduction is referred to as a capital works deduction.
The deduction is available on the cost of constructing structural improvements or extensions, alterations or improvements to structural improvements if the construction started after 26 February 1992 (subsection 43-20(2) of the ITAA 1997).
For structural improvements, the annual capital works deduction allowable is 2.5% of the construction expenditure for a period of 40 years. Construction expenditure is the actual cost of constructing the capital works (section 43-25 of the ITAA 1997).
In your case, the works undertaken to your rental property to install a stormwater management system is considered to be capital works for the purposes of Division 43 of the ITAA 1997. As such, you are entitled to claim an annual capital works deduction at a rate of 2.5% of the construction costs. This deduction is available only while the property is being rented or available for rent, up to a maximum period of 40 years.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
