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Whether to claim captial work deduction for rental property

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I have an investement property for last tax year, for the deductible expense, can I choose NOT to claim the capital work deduction and the depreciation of plant&equipment so that it won't reduce the cost base in terms of CGT for the property when I sell the property?

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Hi @michaelwu ,

As per Deductions you can claim , there are conditions when taxpayers can claim expenses, usually related to their income - quoted -

"When completing your tax return, you're entitled to claim deductions for some expenses, most of which are directly related to earning your income." (italics added).

The term 'entitled' implies that this is not mandatory - you are allowed to, provided you meet the conditions, but you don't have to (for whatever reason).

 

The same principle applies for rental expenses (as per Rental expenses PDF, Pg 9), quoted here -

"However, you cannot claim expenses of a capital nature or private nature (although you may be able to claim decline in value deductions or capital works deductions for certain capital expenditure..)"

 

The usual strategy is to include any such expenses to add to your cost base so as to reduce your CGT, when selling an investment property (these extra capital expenses eg legal fees, stamp duty, can be considerable). However, ultimately (under self-assessment) it is up to you if you did not want to include these expenses for your property.

 

 

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Most helpful response

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Hi @michaelwu ,

As per Deductions you can claim , there are conditions when taxpayers can claim expenses, usually related to their income - quoted -

"When completing your tax return, you're entitled to claim deductions for some expenses, most of which are directly related to earning your income." (italics added).

The term 'entitled' implies that this is not mandatory - you are allowed to, provided you meet the conditions, but you don't have to (for whatever reason).

 

The same principle applies for rental expenses (as per Rental expenses PDF, Pg 9), quoted here -

"However, you cannot claim expenses of a capital nature or private nature (although you may be able to claim decline in value deductions or capital works deductions for certain capital expenditure..)"

 

The usual strategy is to include any such expenses to add to your cost base so as to reduce your CGT, when selling an investment property (these extra capital expenses eg legal fees, stamp duty, can be considerable). However, ultimately (under self-assessment) it is up to you if you did not want to include these expenses for your property.

 

 

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@WainWright  thanks for your reply.

 

I have a question for your this comment

 

'The usual strategy is to include any such expenses to add to your cost base so as to reduce your CGT, when selling an investment property (these extra capital expenses eg legal fees, stamp duty, can be considerable)'

 

My understanding is for the rental property, the decline in value deduction and captial work deduction I have claimed in my individual tax return will reduce the cost base of the property, https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/Sale-of-property-an...

 

so when I sell the property it will increase my CGT, that's the reason I am asking if I could choose not to claim such deduction in my tax return, it works to the opposite of legal fees, stamp duty etc

 

Thanks for your feedback

 

Michael

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Hi @michaelwu

 

Thanks for getting back to us and for your patience.

 

While you don't have to claim capital works deductions as a rental expense on your tax return, you may want to have a look at the information on our website about cost base adjustments for capital works deductions.

 

You will see that you may need to exclude any capital works deductions you've claimed in any income year (or omitted to claim but can still claim because the period for amending the relevant income tax assessment has not expired).

 

It is important to note that you don't need to exclude any capital works deductions if you omitted to claim them as a rental expense because you didn't have sufficient information to determine the amount and nature of the construction expenditure. In other words, it depends on why the capital works deductions weren't claimed.