What is a capital works deduction?
Capital works deductions relate to eligible construction expenditure on a building or structural improvements. They differ from deductions for depreciating assets, such as equipment. A property’s purchase price is not its construction cost.
How is the deduction worked out?
The ATO describes rates of 2.5% or 4%, with the applicable treatment depending on construction dates and use. The corresponding periods are 40 or 25 years. Buying an existing property does not restart its construction deduction period.
Ask your accountant to confirm eligibility, the relevant expenditure, ownership share and income-producing period. A quantity surveyor can help establish construction costs where the available records are incomplete.
A simple calculation, with explicit assumptions
Illustrative arithmetic only — not a client result or tax-savings estimate. Assume $200,000 of eligible construction expenditure, an applicable annual rate of 2.5%, full ownership and an entire eligible income year within the remaining deduction period. The calculation is $200,000 × 2.5% = $5,000.
The $5,000 is a deduction figure, not a refund. Change the eligibility, ownership or period and the calculation changes. This example does not establish which rate or expenditure applies to your property.
Build a construction history before ordering
- Record the original building’s approximate start and completion dates.
- List each later renovation separately, with its date and available invoices.
- Separate the property purchase contract from construction and asset records.
- Keep previous schedules, vendor information and records of changes in use.
- Mark unknown dates or costs as unknown rather than guessing.
For example, keep a bathroom renovation and a replacement appliance as separate entries. This makes it easier for the professional to identify the work and decide how it should be treated.
What happens when you sell?
Capital works deductions can affect the CGT cost base. Keep the schedule and deduction history with your tax records, and ask your accountant to assess the adjustment and your overall position. An annual deduction alone does not establish the lifetime tax benefit.
Frequently asked questions
Can an older property still be worth assessing?
Give the provider the original construction and later renovation history. Building age alone is not enough to decide whether an assessment would be useful; your accountant determines the tax eligibility.
Can I recover deductions from earlier years?
Ask your accountant to check the relevant returns and amendment deadlines before ordering retrospective work. A new schedule does not automatically reopen an earlier tax return.
Which report should I request?
Ask for a tax depreciation schedule if you need construction and asset information for your accountant. A market valuation answers a different question: what the property was worth at a specified date.
Sources and further reading
- ATO: Work out your capital works deductions — Eligible construction expenditure and applicable deduction rules.
- ATO: Cost base adjustments for capital works — How capital works deductions can affect the CGT cost base.
Arrange the right report
Explore tax depreciation with Propti. Send the property address, purpose, required date and recipient’s instructions when you request a property report quote.