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When calculating historical construction costs, a number of items need to be included in Division 43 calculations:
- Materials and labour used in construction;
- Head contractor’s profits and overheads;
- Head contractor’s preliminary costs;
- Consultant fees; and
- Local Government fees.
According to Income Tax Assessment Act 1997 – Section 43.70, there are a number of items that can not be included in a Division 43 - capital works allowance claim. The items that must be excluded from calculations include:
- Expenditure on acquiring land; or
- Expenditure on demolishing existing structures; or
- Expenditure on clearing, levelling, filling, draining or otherwise preparing the construction site prior to carrying out excavation works; or
- Expenditure on landscaping; or
- Expenditure on Depreciating Assets – Division 40.
Other exclusions include:
- Marketing costs involved in selling the development;
- Developers margin;
- Market driven intangible costs.
Capital works allowance (Division 43) calculations are complicated and should be handled by a qualified professional. A detailed knowledge of construction costing elements and the ATO’s guidelines in the application of legislation is essential to maximising the potential claims available to an income producing property.
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