Private ruling: Rental property capital works
Published: September 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a capital works deduction from when your property was rented? | A1: Yes. | Q2: Are you entitled to a portion of a capital works deduction for the construction cost of a new roof for your unit block? | A2: Yes.

Relevant facts and circumstances: You have owned a home unit for almost six years, and you lived there for over four years until you rented it out. You extensively renovated the property with new kitchen, bathroom, and carpets before you moved in when you purchased it. The unit has been rented out for almost 18 months. The building was constructed over 30 years ago. There was a special levy issued in last year, payable over a period of four months for a new roof. The expense for the work carried out for the new roof was incurred by the body corporate after you had rented out the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 43-10 | Income Tax Assessment Act 1997 Section 25-10

Reasons for decision: Summary: Under Division 43 of the Income Tax Assessment Act 1997 (ITAA 1997), you can deduct certain capital expenditure on buildings used to produce assessable income. Section 43-10 of the ITAA 1997 operates to allow a deduction for an amount of capital works used in a deductible way during the income year. That is, during periods when the building is not used for income-producing purposes, no capital works deduction is available to you. However, where you use the property as income producing, such as a rental property, you are eligible for a deduction of 2.5% of the construction cost for the portion of the year the property is rented. In your situation, you use the property as a rental property for only part of the 2011-12 financial year. You are therefore entitled to a deduction for a portion of the total capital works deduction, apportioned for the period the property was used as a rental property. | Detailed Reasoning - Special levy for new roof: While your special levy may be intended to be for the purposes of paying for construction expenditure, the amount of construction expenditure paid for by the body corporate may not be the exact amount of the levy raised. For this reason, you will be eligible only to claim an amount equal to your portion of the actual amount paid by the body corporate for the work done to the roof of your unit block. In the same way that you must apportion the capital works deduction that you carried out in the first year the property was rented, you will have to apportion the amount that you can claim.