Capital Works

Deductions are available for capital expenditure incurred in constructing ‘capital works’, including buildings and structural improvements. The deduction is either 2.5% or 4% of the construction cost, depending on when the construction started and how the capital works are used. The deduction cannot exceed the undeducted expenditure.

Unlike capital allowances, the deduction for capital works is based on the original construction cost, not the price paid by the current owner. Where the original construction cost is unknown, a building cost estimate by a qualified surveyor or other qualified person can be used (such qualified people would not normally include valuers, real estate agents, accountants or solicitors).

Alterations, extensions or improvements to buildings are treated as separate capital works.

While there is no catch-up deduction when a capital work is sold, the deductions claimed may reduce the cost base of the asset to which they are attached.