Capital Allowances & Capital Works (Rental Property)

Hello Visitors,
This blog is regarding the deductions related to the rental expenses. Rental expenses are claimed
over a period of several years. Here we are going to talk about the Capital expenditure. Capital
expenditures are those expenses that we incur on the construction of capital works. Some of these
expenses are the costs of construction of the building as well as structural improvements and
extensions to it.

Capital expenditure includes the following:-

• Improvements
• Depreciating Assets
• Initial Repairs
• Capital Allowances
• Capital Works

We often get confused between the last two i.e., Capital Allowances and Capital Works. So, let me
explain you the difference between the two.

Capital Allowances

Capital allowances are the depreciable assets, which don’t form part of the premises or the structure
like the plant and equipment, carpets, furniture, curtains, appliances, etc. These items are usually:

• separately identifiable
• not likely to be permanent and expected to be replaced within a relatively short period

We can choose to use either the effective life the Commissioner has determined for such assets, or
our own reasonable estimate of its effective life. When we estimate an asset’s effective life, we must
keep the records to show how we worked it out.

Capital Works

Capital works describes certain kinds of construction expenditure that are used to produce income.
The rate of deduction for these expenses is generally 2.5% per year for 40 years following
construction. Capital works include :-

• building construction costs
• the cost of altering a building
• major renovations to a room
• adding a fence
• building extensions such as garages or patios
• adding structural improvements like a driveway or retaining wall.