Property tax jargon explained: What are capital works deductions?
Tax depreciation lingo can sometimes be confusing, but as an investor, it’s important that you understand the depreciation deductions you can claim to ensure you’re getting the most out of your investment property.
As outlined by the Australian Taxation Office there are two categories that make up depreciation deductions - division 43 capital works deductions and division 40 plant and equipment depreciation.
Capital works deductions cover flooring, bricks, wiring and more.
Capital works deductions are income tax deductions an investor can claim for the wear and tear that occurs to the structure of the property and items considered to be permanently fixed to the property. This includes any structural improvements that may have been made during a renovation within the relevant dates.
In a residential property, capital works deductions cover the following items:
Bricks, mortar, walls, flooring and wiring
Built-in kitchen cupboards
Doors and door furniture (handles, locks etc.)
Fences and retaining walls
Sinks, basins, baths and toilet bowls
Some common items in commercial properties that can be claimed as capital works deductions include:
Bricks, mortar, walls, flooring, roofing and wiring
Sinks, tiles, basins and toilet bowls
Ducting for air conditioning
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As a general rule, any residential building where construction commenced after the 15th of September 1987 will entitle their owner to capital works deductions at a rate of 2.5 per cent per year for up to forty years. In a commercial building, capital works deductions generally apply to buildings where constructed commenced after the 21st of August 1984.
If your property was constructed prior to these dates, it’s still important to get in touch with a qualified Quantity Surveyor such as BMT Tax Depreciation as often these buildings will have undergone some form of renovation which can result in capital works deductions for the owner.
This information is provided by DPN Pty Ltd ABN: 94 630 700 186 Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and related entity of DPN. Credit for Dream Big 100% Offset and Work Smart 100% Offset is provided by Adelaide Bank a division of Bendigo and Adelaide Bank Ltd, ABN 11 068 049 178 and Australian Credit Licence 237879. Casa Capace Operations Pty Ltd, NDIS provider number 4050038018 trading as Casa Capace.