Private ruling: Capital works
Published: February 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Can you claim a capital works deduction in the 2012-13 financial year? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Division 43 | Income Tax Assessment Act 1997 section 43-110 | Income Tax Assessment Act 1997 subsection 40-52(2)

Reasons for decision: Summary: Division 43 of the Income Tax Assessment Act 1997 (ITAA 1997) allows you to deduct an amount for construction expenditure on certain income producing capital works for an income year. The capital works deduction is only available for taxpayers with certain proprietary rights to the capital works. Section 43-110 of the ITAA 1997 explains that a capital works deduction is only available if you own, lease or hold the capital works. No more than one person may be entitled to the deduction in relation to that part of the capital works. Capital expenditure on capital works by the owner of those capital works can only be deductible to that owner or a subsequent owner. A subsequent owner can claim a capital works deduction based on the original construction expenditure of the capital works. Taxation Ruling TR 97/25 discusses construction expenditure and states at paragraph 19, a deduction under Division 43 is dependent, among other things, on capital expenditure having been incurred in respect of the construction of capital works. The deduction is determined by reference to the amount of such expenditure incurred by the owner, lessee or quasi-owner of the capital works at the time those works were undertaken. Subsection 40-45(2) states; Division 40 - Capital allowances - do not apply to capital works for which you can deduct amounts under Division 43. In your case expenditure incurred in the construction of the office qualifies as construction expenditure for Division 43 purposes. The office will be used solely for your income producing business and as the owner of the land and the office you are entitled to a capital works deduction of 2.5% of the construction expenditure.

Relevant facts: You are a sole trader. You erected an office where you spend approximately 50 hours per week as it is your sole place of business for income producing activities and has been occupied since construction was completed. | The office was completed in the 2012-13 financial year.