Capital Works vs Capital Allowances

I am doing my IP tax return for the first time and am puzzled by the fact there is question for Captial Works and Capital Allowances.

My surveyor has put both all the building costs, including my mods like Water Meter and clothes lines on what he calls a Tax Deprec and Captial allowances schedule. (Un)Helpfully he has a column called "Capital Works allowances". Not sure whether to put his numbers in the Capital Works or Allowances box? I am pretty sure it goes in Works. What goes in allowances (plant?)

In the 2020 Guide it refers to "Capital Works" about 70 times and does not seem to talk very much about "Capital allowances (5 times). I am guessing therefore "works" is where to place his depreciation numbers.

In online help it seems to suggest you should work out your "Capital Works" deduction using the "Capital allowances" tool. A bit of a puzzle for me.

Perhaps the answer is that if I bought a new AC I should depeciate as a Capital allowance (Examples: plant and machinery, computer hardware and motor vehicle). according to Rental Property Depreciation But the construction costs (2.5%) per year are capital works. Thus: should I have two Deprec schedules? One for Works and one for Stoves and ACs etc and the other for walls, the roof and original building.

Thanks in advance

 

when did you purchase the property ?

and when was it first rented ?

 

Purchased July 2019. Rented August 2019. Pretty surprised that it is the key piece of information - but I'm all ears.

 

Capital work and capital allowances and depreciation can all be comingled. There are also terms like decline in value, pooling etc that further complicate matters

Div 40 is a depreciation often called capital allowances
Div 43 is building works and usually called building allowance or capital allowance

If you have a QS report you DO NOT USE any calculator tools. Just enter the report numbers providing the property remains eligible for continued Div 40 depreciation. Based on the date acquired if it was new then no issues. If an existing property Div 40 probably is $0 or limited only to new assets YOU acquired after purchase.

If you dont have a QS report it may be worth your while to obtain one for the construction costs. While 2.5% sounds minor it can be quite signiifcant now and every future year for a while.

 

it was a question as depending on when you purchased the property and what you did with the property after purchase determines whether the capital allowances are deductible or not.

if new assets purchased then no issues. if assets in an existing property then an issue.

also you will need to work out where to put low value pool items into the tax return. doesn't go in the rental property schedule.

 

Thanks. Yes I had a QS report done. House built in the 90's, so still an amount to depreciate each year.

 

ok...you are aware that you can only claim capital works deductions any existing plant & equipment in the property when you purchased it can't be depreciated

 

I have noted the ATO are matching the first available for rent date and Div 40 deductions and asking more questions. I have been apporached by several new potential clients who all overclaimed a former IP that once again recommenced rental and the ATO seek to cancel the deduction for Div 40. My standard response is - the ATO are correct and yes you overclaimed a deduction that is now not available. Its a red flag at the ATO. Like claiming travel expenses is a red flag.

Danger : Dont just use a old QS report if a property re-commences rental again anytime after July 2017. The Div 40 element may now be non-deductible BUT it isnt lost - It can produce a CGT loss in the future. Only NEW assets acquired while a rental can now be depreciated.

 

Thanks Paul and Mike.