Property Investors: How to claim the building write off allowance

The end of another financial year is in sight and property investors will soon be collating information so that their income tax returns can be prepared.  One of items that is sometimes forgotten with new investors is the capital works deduction or, as it is more commonly known, special building write off allowance.  An investor may be able to claim a building write off allowance relating to a residential rental property if its construction commenced after 18 July 1985.  The rate is equal to 4% of the construction cost if construction commenced between 18 July 1985 and 15 September 1987 or 2.5% if construction commenced after 15 September 1987.  Different rates and construction date apply to non-residential buildings, short term travellers’ accommodation and structural improvements.

You will need to obtain the construction cost from the person that you bought the property from plus details of how much they have already claimed, if they have the information.  Otherwise, you can engage a qualified quantity surveyor to prepare a taxation depreciation report.  The ATO will generally accept the report to substantiate your claim and it should be noted that the cost of the report will be tax deductible.  It is important that you remember that it is the construction cost that is relevant for building write off and not what you paid to purchase the property.

Some investors try to avoid the cost of engaging a quantity surveyor to prepare a report or simply ignore the building write off but this can be expensive.  For example, say the house is 5 years old and cost $350,000 to build.  The building write off would be around $8,750 each year for this property.  This is an ongoing deduction of $8,750 every year for the next 35 years.  The quantity surveyors report will also provide details of depreciation for existing fixtures in the property such as airconditioners and hot water systems.

Dennis On is a Senior Associate with BDO NT, a local accounting firm that is a member of the BDO international network. He has had over 20 years in the industry and provides businesses with accounting, taxation and management advice. He specialises in helping businesses to grow and assisting their owners to meet their personal goals.