Are Capital Works Funds (previously known as Sinking Funds) deductible? I'm talking about the regular levy contributions, not special levies. There seems to be a view that the ATO views them as not immediately deductible but investors "may be able to claim a capital works deduction for your share of the expense once the work is completed and the cost has been charged to the fund". How they expect us to claim this in reality though? Body corporate levy statements don't typically disclose or attribute ex-post expenses, and trawling through annual body corporate financial statements to work out their expenses and work out individual unit entitlements would be incredibly labour intensive. Also, why would Capital Works Funds be automatically viewed as non-deductible when they are often used for common property repairs and maintenance?
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Hello @Trippy,
You can find more information about sinking funds and the claimable deductions available in the rental properties guide. The main reason you are most likely not allowed to claim deductions the moment you add funds is due to the possibility of it being used fraudulently. Some capital works can take a long period crossing into more than one financial year and if people could choose when their deductions counted it could easily be used wrongly. That's why the deductions are usually claimed after the expense so that there is a clear requirement across the board for everyone.
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Hello @Trippy,
You can find more information about sinking funds and the claimable deductions available in the rental properties guide. The main reason you are most likely not allowed to claim deductions the moment you add funds is due to the possibility of it being used fraudulently. Some capital works can take a long period crossing into more than one financial year and if people could choose when their deductions counted it could easily be used wrongly. That's why the deductions are usually claimed after the expense so that there is a clear requirement across the board for everyone.
Thank you @TeddyATO ! This approach raises a couple of questions:
- Are property investors in NSW taxed differently just because we have to pay levies to a "Capital Works Fund" which is viewed as a "special purpose fund" (i.e. no immediate deductions), rather than a general sinking fund as is the case in other states? Both are used for the same purposes i.e. for a combination of deductible repairs and deductible/nondeductible capital works.
- Back to Part 2 of my original question - how do we determine how much to claim after the expense is incurred, given the lack of data on individual lot entitlements for claimable expenses after they are incurred? Is this the ATO expectation on how claims should be made?
Thanks!
Hey Trippy
This is one we'd need our experts to assist you with. We recommend getting tailored technical assistance from us so you can get the right advice for your situation.
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