Tax Tip 193: When can Capital Work Deductions be Claimed when Constructing a Property?

Capital works deductions can only be claimed once completion of construction of the capital works is complete. s 43-30 ITAA97. They can’t be claimed during construction, even if you will be constructing an investment property.


Example

Bart has settled on some land and has started constructing a property which he intends to immediately rent out on completion – it is held on capital account. Bart will be entitled to a deduction for depreciation on the building works at 2.5% pa for the next 40 years – capital works deductions under Division 43 of the ITAA.

Bart commences building in April and it is completed in December, so the building is done over 2 financial years.

When can he start claiming the deduction?

In this case Bart could only claim 2.5%pa from December onwards.

(but he could claim interest, rates, water etc from the date of purchase for the moment, but this will no longer be the case from 1 July 2019).

 

The key test for a build to rent site is the earlier of construction completion (cert of occupancy) from July 2019 onwards. For a purchased property the test will remain that of being available to rent.

I believed the ATO were considering amending their ruling so that the Commissioners understanding of "completion" in s43-40 will adopt the same position. So practical completion of construction itself wont be the eligible test but a requirement the site if fit for occupancy. This may mean fitouts and public access etc. As that is the date the asset is first in place for use. I havent seen any change / progress so far.