4% gone, but capital works shouldn’t be forgotten

On the 18th of July 1985, legislation was first introduced to allow owners of residential investment properties to claim capital works deductions.

This allowed owners to claim a loss for the wear and tear of the structural and fixed items contained within an investment property such as walls, ceilings, roofs, windows and doors.

When the legislation was initially introduced, owners could claim capital works deductions (depreciation for structural items of a building) at a rate of 4% per year for up to twenty-five years. However, on the 15th of September 1987 an amendment was made to the legislation, where the owners of residential properties in which construction commenced after this date could only claim capital works at a rate of 2.5% over forty years from construction completion.

As more than twenty-five years have passed since the original legislation was introduced, owners of residential properties built between the two dates can no longer claim the 4% deduction for capital works.

This doesn’t mean that the owners of properties in which construction commenced prior to 1987 won’t be entitled to claim any capital works deductions. Capital works deductions are potentially still available for any recent renovations.

Substantial depreciation deductions are also available for any of the plant and equipment assets contained in the property.