Private ruling: Depreciation
Date of advice: 23 October 2025
Published: 8 December 2025
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 June 20XX

Ruling: Q1: Are youentitled to claim the depreciation rate of 4% under subsection 43-145(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No, you are not entitled to claim depreciation at a rate of 4% for the construction cost of the boarding rooms under section 43-145(1) of the ITAA 1997 as you are not providing short term accommodation similar to hotel-motel or guest house type accommodation.

Relevant facts and circumstances: Trust A (you) owns a property located at a specified address comprising a specified number of accommodation units. The trustee for the trust is Company A. Construction of the building was completed on a specified date, after which leasing began under the management of Company B, an unrelated entity responsible for operating the property. Although the rooms are styled like hotel or motel accommodations and fully furnished with internet access, they do not have internal laundry facilities and are not intended for long-term stays. The leases are licensing agreements, not standard residential tenancies. Less than half of tenants stay up to three months, with the rest staying longer. Of the short-term stays, fewer than 10 rooms are used for stays under one month. New tenants receive fresh linen upon arrival and are responsible for laundering it, though paid laundry services are available. They also clean their own rooms and bathrooms, with optional cleaning services offered, and have exclusive use of their units without food provided. Company B provides you with monthly transaction summaries, which you process to prepare monthly reports and quarterly BAS submissions. The property typically maintains a high level of occupancy, consistently close to full capacity. You are merely the owner of the building and do not provide any other services. You receive rental income inclusive of GST from Company B and report the income. The building includes shared communal facilities for its residents.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 43-25(1) | Income Tax Assessment Act 1997 subsection 43-95(1) | Income Tax Assessment Act 1997 subsection 43-145(1) | Income Tax Assessment Act 1997 section 43-180 | Income Tax Assessment Act 1997 subsection 43-180(1) | Income Tax Assessment Act 1997 subsection 43-180(2) | Income Tax Assessment Act 1997 subsection 43-180(3)

Reasons for decision: Summary: Subsection 43-25(1) of the Income Tax Assessment Act 1997 (ITAA 1997) outlines the rate of deduction for capital works that begun after 26 February 1992. There is a basic entitlement to a rate of 2.5 % for parts used as described in Table 43-140. The rate increases to 4 % for parts used as described in Table 43-145 Subsection 43-145(1) of ITAA 1997 provides you use a part of your area in the 4% manner if you use it as described in the table. The table has 3 columns. Column 1 is titled 'Date capital works begin'. Column 2 is titled 'Type of capital works'. And Column 3 is 'Use of a part of your area at some time in the income year'. In Column 1, it records 2 time periods. The relevant time period for your circumstances is Time period 1: After 30 June 1997. In Column 2, adjacent to time period 1, the type of capital works is 'Capital works that are buildings. Column 3 outlines various uses of the area for this time period. Relevant to your circumstances, the provision of law states: You use the part of your area for the purpose of producing assessable income and: (a) that part is used by any entity wholly or mainly to operate a hotel, motel or guest house; and (b) that hotel, motel or guest house has at least 10 bedrooms that are used or available for use wholly to provide short-term accommodation for travellers. A Note after the table in subsection 43-145(1) states there are special rules that explain or qualify the uses described in Column 3 of the Table found in sections 43-155 to 43-195 of the ITAA 1997. Section 43-160 of ITAA 1997 provides an explanation when your area is used for a purpose if it is maintained ready for use for the purpose. A part of your area is taken to be used, for use or available for use for a particular purpose or in a particular manner at a time if, at that time: (a) it was maintained ready for use for that purpose or in that manner; and (b) it was not used or for use for any other purpose or in any other manner; and (c) its use or intended use for that purpose or in that manner had not been abandoned. Section 43-180 specifically addresses how to determine eligibility for capital works deductions for buildings used to provide short-term accommodation, such as hotels, motels, serviced apartments and guest houses. Initially, subsections 43-180(1) to (3) outline the rules about counting rooms or apartments etc. Section 43-180(1) makes the following statement about a bedroom in a hotel or apartment building and the room is used or available for use for short-term accommodation: Section 43-180(1) states: A bedroom in a hotel building, or an apartment, unit or flat in an apartment building, is taken to be used or available for use wholly for short-term accommodation for travellers in a period if it is used or available for use mainly for short-term accommodation for travellers in that period. | Detailed Reasoning - Definition of Short-Term Accommodation: The Time period 1: After 30 June 1997 of subsection 43-145(1) and subsection 43-180(1) include the specific statement 'short-term accommodation for travellers'. The term 'short-term accommodation' is not defined in the ITAA 1997. Therefore, its ordinary meaning applies: • The Macquarie Dictionary does not provide a definition for the term 'short-term accommodation'. • Short-term accommodation typically refers to stays of one night, a few nights, or a few weeks. • It is commercial practice by hotel and motel operators to quote accommodation rates as the daily rate. • Section 87-20 of the A New Tax System (Goods and Services) Act 2000 (GST Act 1999) defines long-term accommodation as stays of 28 days or more. The Macquarie Dictionary define traveller or travellers as: someone or something that travels or someone who travels or has travelled in distant places or foreign lands. | Detailed Reasoning - Conclusion: In your case, you are using your property to generate assessable income, with Company B managing operations. Most rooms are rented for three months or longer, and only a small number-fewer than 10 bedrooms-are used for short-term stays of one month or less. Tenants have exclusive use under an agreement, pay rent fortnightly in advance, and responsible for their own cleaning and maintenance. Optional services are available for a fee. These arrangements resemble residential leasing rather than hotel-style accommodation. Therefore, you are not eligible to claim 4% depreciation on the construction cost of the boarding rooms.