When considering improvements like concrete work and driveway resurfacing for your investment property, it’s essential to understand how these expenses can be claimed. Under Division 43 of the ITAA 1997, these types of structural improvements are considered capital works and are depreciated over an extended period.
The misconception often arises that these works can be claimed as immediate deductions. However, since they are capital improvements, they must be depreciated over time. The ATO allows you to claim a percentage of the construction costs each year, typically 2.5% over 40 years, provided the property was constructed after 16 September 1987.
To see how this plays out, consider a scenario where you undertake driveway resurfacing and concrete work on a 2005-built investment property in Melbourne. Suppose the total cost of these improvements is $20,000. You can claim $500 per year as a deduction (2.5% of $20,000), which, at a 37% marginal tax rate, reduces your tax bill by $185 annually.
In our experience reviewing thousands of properties across Australia, investors frequently overlook capital works deductions on improvements like driveways. Many mistakenly believe these are not claimable or confuse them with repairs, which can lead to missed tax savings. Another common oversight is failing to maintain accurate records of construction costs, which complicates claims and can result in disputes with the ATO.
The answer can differ depending on your situation. If your property was built before 16 September 1987, you generally cannot claim capital works deductions on the original construction, though improvements made after this date are claimable. Additionally, if you own the property through an SMSF or in joint ownership, the deductions may be allocated differently. For properties acquired after 9 May 2017, remember that second-hand plant and equipment cannot be depreciated by the new owner, but this does not affect capital works.
Given the complexity and variability in claiming these deductions, consulting with a Chartered Quantity Surveyor and your accountant is advisable. They can ensure that you maximise your deductions while remaining compliant with ATO regulations.