Table of Subdivisions
Guide to Division 43
43-A Key operative provisions
43-B Establishing the deduction base
43-C Your area and your construction expenditure
43-D Deductible uses of capital works
43-E Special rules about uses
43-F Calculation of deduction
43-G Undeducted construction expenditure
43-H Balancing deduction on destruction of capital works
Guide to Division 43
What this Division is aboutYou can deduct certain capital expenditure on assessable income producing buildings and other capital works. This Division sets out the rules for working out those deductions.
43-2 Key concepts used in this Division
The following graphic introduces the key concepts used in this Division and shows the relationships between them.
Subdivision 43-A—Key operative provisions
What this Subdivision is aboutThis Subdivision contains the key operative provisions for this Division, including all of the deduction entitlement provisions. You should read all of this Subdivision to understand how this Division works.
Table of sections
Operative provisions
43-10 Deductions for capital works
43-15 Amount you can deduct
43-20 Capital works to which this Division applies
43-25 Rate of deduction
43-30 No deduction until construction is complete
43-35 Requirement for body corporate to be registered under the Industry Research and Development Act
43-40 Deduction for destruction of capital works
43-45 Application of Division 41 common rules
43-50 Links and signposts to other parts of the Act
43-55 Anti-avoidance—arrangement etc. with tax-exempt entity
Deductions for capital works(1) You can deduct an amount for capital works for an income year.
(2) You can only deduct the amount if:
(a) the capital works have a *construction expenditure area; and
(b) there is a *pool of construction expenditure for that area; and
(c) you use *your area in the income year in the way set out in Table 43-140 (Current year use).
Note 1: The deduction is limited to capital works to which this Division applies, see section 43-20.
Note 2: Amongst other things, the definition of your area ensures that only owners and certain lessees of capital works, and certain holders of quasi-ownership rights over land on which capital works are constructed, can deduct an amount under this Division.
(1) The amount you can deduct is a portion of *your construction expenditure. However, it cannot exceed the amount of *undeducted construction expenditure for *your area.
Note: The limit in this subsection has 2 effects:
·
It ensures that not more than 100% of your construction expenditure can be deducted.·
It imposes a time limit on the period over which your construction expenditure can be deducted. For capital works begun before 27 February 1992, that period will be 25 years if the rate of deduction is 4% or 40 years if the rate is 2.5%. For other capital works, the period will be 25 years or 40 years or some period between 25 and 40 years depending on their use.(2) Your deduction is calculated under section
43-210 or 43-215. Capital works to which this Division appliesBuildings
(1) This Division applies to capital works being a building, or an extension, alteration or improvement to a building:
(a) begun in Australia after 21 August 1979; or
(b) begun outside Australia after 21 August 1990.
Note: Section 43-80 explains when capital works begin.
Structural improvements
(2) This Division also applies to capital works (other than capital works referred to in subsection (1)) begun after 26 February 1992 that are structural improvements, or extensions, alterations or improvements to structural improvements, whether they are in or outside Australia.
(3) Some examples of structural improvements are:
(a) sealed roads, sealed driveways, sealed car parks, sealed airport runways, bridges, pipelines, lined road tunnels, retaining walls, fences, concrete or rock dams and artificial sports fields; and
(b) earthworks that are integral to the construction of a structural improvement (other than a structural improvement described in subsection (4)), for example, embankments, culverts and tunnels associated with a runway, road or railway.
(4) This Division does not apply to structural improvements being:
(a) earthworks that:
(i) are not integral to the installation or construction of a structure; and
(ii) are permanent (assuming they are maintained in reasonably good order and condition); and
(iii) can be economically maintained in reasonably good order and condition for an indefinite period;
for example, unlined channels, unlined basins, earth tanks and dirt tracks; or
(b) earthworks that merely create artificial landscapes, for example, grass golf course fairways and greens, gardens, and grass sports fields.
Environment protection earthworks
(5) This Division also applies to capital works being earthworks, or extensions, alterations or improvements to earthworks, if:
(a) they are constructed as a result of carrying out an eligible environment protection activity within the meaning of section 82BM of the Income Tax Assessment Act 1936; and
(b) they can be economically maintained in reasonably good order and condition for an indefinite period; and
(c) they are not integral to the construction of capital works; and
(d) the expenditure on the capital works was incurred after 18 August 1992.
Note: This subsection allows you to deduct an amount for some earthworks that are excluded by paragraph (4)(a) if the earthworks are constructed in carrying out an eligible environment protection activity.
(1) For capital works 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 (Current year use). The rate increases to 4% for parts used as described in Table 43-145 (Use in the 4% manner).
(2) For capital works begun before 27 February 1992 and used as described in Table 43-140, the rate is:
(a) 4% if the capital works were begun after 21 August 1984 and before 16 September 1987; or
(b) 2.5% in any other case.
Note: Section 43-80 explains when capital works begin.
You cannot deduct an amount for any period before the completion of construction of the capital works even though you used them, or part of them, before completion.
43-35 Requirement for body corporate to be registered under the Industry Research and Development Act
A body corporate may deduct an amount under this Division on the basis of using capital works for the purpose of carrying on *research and development activities only if the body corporate is registered under section 39J (Registration of eligible companies) or 39P (Joint registration) of the Industry Research and Development Act 1986.
Note: Research and development activities must be carried on in connection with a business carried on for the purpose of producing assessable income, see section 43-195.
(1) You can deduct an amount if all or a part of *your area is destroyed in an income year and:
(a) you have been allowed, or can claim, a deduction under this Division, or Division 10C or 10D of Part III of the Income Tax Assessment Act 1936, for your area; and
(b) there is an amount of *undeducted construction expenditure for your area; and
(c) you were using your area in the way that applies to it under Table 43-140 (Current year use) immediately before the destruction or, if not, neither you nor any other entity used your area for any purpose since it was last used by you in that way.
(2) The deduction is allowable in the income year in which the destruction occurs, and is calculated under section 43-250.
Note: The effect of this provision is to allow you to deduct an amount in the income year in which the capital works are destroyed for all of your construction expenditure that has not yet been deducted. However, you must reduce the deduction by any insurance and salvage receipts.
Common rule 3 in Division 41 applies to deductions under this Division.
43-50 Links and signposts to other parts of the Act
Links
(1) No part of a *pool of construction expenditure can be an allowable deduction, or taken into account in working out the amount of an allowable deduction, under a provision of this Act other than this Division.
(2) No part of an amount incurred by an entity in acquiring capital works for which there is a *pool of construction expenditure can be an allowable deduction, or taken into account in working out the amount of an allowable deduction, under a provision of this Act other than this Division.
(3) You will be taken not to be the owner of any part of capital works that are the subject of a lease that you have elected to treat as a disposal of an asset under section 160ZSA of the Income Tax Assessment Act 1936. The lessee or sublessee will be taken to be the owner of that part.
Note 1: Section 160ZSA allows holders of estates in fee simple and lessees of land who have certain leases or subleases with terms exceeding 50 years to elect to treat the grant of the lease or sublease as the disposal of an asset for the purposes of the capital gains and losses provisions.
Note 2: See subsection 43-180(3) for the effect of the rule in subsection (3) of this section on the need to own 10 apartments, units or flats in an apartment building.
Signposts
(4) Subsection 51AE(14) of the Income Tax Assessment Act 1936 treats property that is used for non-deductible entertainment as not being used for the *purpose of producing assessable income.
(5) Even if you are not using property for the *purpose of producing assessable income, you will be taken to do so in particular circumstances, see section 330-455 of this Act (dealing with property used for *rehabilitation) and sections 82BG and 82BR of the Income Tax Assessment Act 1936 (dealing with environmental impact or protection activities).
(6) There are special record-keeping rules that apply to this Division in subsection 262A(4AJA) of the Income Tax Assessment Act 1936.
43-55 Anti-avoidance—arrangement etc. with tax-exempt entity
(1) You will not be allowed a deduction under this Division for an income year if the Commissioner is satisfied that:
(a) you entered into an *arrangement with:
(i) an entity to which paragraph 23(d), (e), (ea), (eb), (ec), (f), (g), (h), (j) or (k) of the Income Tax Assessment Act 1936 (dealing with *exempt income) applies; or
(ii) an STB (within the meaning of Division 1AB of Part III of that Act) whose *ordinary income and *statutory income is exempt from income tax;
under which you were to pay an amount, or transfer property, directly or indirectly, to the entity; and
(b) the amount of the payment or the value of the property is calculated by reference to the amount of a deduction allowable to you under this Division; and
(c) a purpose of the arrangement that is not a merely incidental purpose is to ensure that the benefit of the deduction would pass wholly or substantially to the entity, whether directly or indirectly.
(2) Subsection (1) applies to *arrangements entered into with an entity referred to in subparagraph (1)(a)(i) after 1 May 1980 that relate to deductions for *hotel buildings or *apartment buildings begun before 1 July 1997.
(3) Subsection (1) also applies to *arrangements entered into with an entity referred to in subparagraph (1)(a)(ii) after 30 June 1994 that relate to deductions for *hotel buildings or *apartment buildings begun before 1 July 1997.
Subdivision 43-B—Establishing the deduction base
What this Subdivision is aboutThis Subdivision explains the meaning of the terms construction expenditure, construction expenditure area and pool of construction expenditure.
Table of sections
43-65 Explanatory material
Operative provisions
43-70 What is construction expenditure?
43-75 Construction expenditure area
43-80 When capital works begin
43-85 Pools of construction expenditure
43-90 Table of intended use at time of completion of construction
43-95 Meaning of hotel building and apartment building
43-100 Certificates by Industry Research and Development Board
Explanatory materialExpenditure in respect of the construction of capital works is only eligible for a deduction under this Division if there is a *construction expenditure area for the capital works. The area defined as the construction expenditure area may comprise the whole of the capital works or only part of them.
Whether there is a *construction expenditure area for capital works and how it is identified depends on the following factors:
A *pool of construction expenditure is that part of an amount of *construction expenditure that is attributable to a particular *construction expenditure area.
What is construction expenditure?(1) Construction expenditure is capital expenditure incurred in respect of the construction of capital works.
(2) Construction expenditure does not include:
(a) expenditure on acquiring land; or
(b) expenditure on demolishing existing structures; or
(c) expenditure on clearing, levelling, filling, draining or otherwise preparing the construction site prior to carrying out excavation works; or
(d) expenditure on landscaping; or
(e) expenditure on *plant; or
(f) expenditure on property for which a deduction is allowable, or would be allowable if the property were for use for the *purpose of producing assessable income, under section 73A (scientific research), 75B (conserving or conveying water), 75D (preventing land degradation), 124F (timber operations) or 124JA (timber mill buildings), or Division 10 (mining and quarrying), 10AAA (transport of minerals and quarry materials) or 10AA (prospecting for and mining petroleum) of Part III, of the Income Tax Assessment Act 1936 or Division 330 (mining and quarrying) of the Income Tax Assessment Act 1997; or
(g) expenditure on property for which a deduction is allowable, or would be allowable if the property were for use for carrying on *research and development activities, under section 73B of the Income Tax Assessment Act 1936; or
(h) eligible heritage conservation expenditure within the meaning of Subdivision AAD of Division 17 of Part III of the Income Tax Assessment Act 1936.
Note: Paragraph (2)(g) only affects buildings begun before 21 November 1987, that were acquired or constructed under contracts entered into before that date or that were intended before that date to be used exclusively for research and development activities.
(1) The construction expenditure area of capital works begun after 30 June 1997 is the part of the capital works on which the *construction expenditure was incurred that, at the time when it was incurred by an entity, was to be owned or leased by the entity or held by the entity under a *quasi-ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency.
Note: Section 43-80 explains when capital works begin.
(2) The construction expenditure area of capital works begun before 1 July 1997 is the part of the capital works on which the
*construction expenditure was incurred that:(a) at the time when it was incurred by an entity, was to be owned or leased by the entity or held by the entity under a
(b) at the time of completion of construction, was to be used in the way described in Column 3 of Table 43-90 (intended use at completion) for the time period when the capital works began as set out in Column 1.
(3) There is taken to be a construction expenditure area for capital works purchased by an entity from another entity if:
(a) the capital works would have had a construction expenditure area but for the fact that the other entity did not incur capital expenditure in constructing the capital works; and
(b) the other entity is not an *associate of the entity; and
(c) the other entity constructed the capital works on land that it owned or leased in the course of a business that included the construction and sale of capital works of that kind.
Note: Subsection (3) makes capital works purchased from a speculative builder eligible for deduction in the hands of the first and subsequent purchasers.
(4) The construction of the capital works must be complete before the
*construction expenditure area is determined.(5) Only one
*construction expenditure area is created each time an entity constructs capital works.Example: An entity undertakes the construction of a building. During the course of construction, the entity makes 3 progress payments to the builder. There is still only one construction expenditure area.
(6) A separate
*construction expenditure area will be created each time an entity undertakes the construction of capital works.Example: In the diagram below, area 1 relates to the original construction of a building which gives rise to one construction expenditure area. Area 2 is a subsequent extension of the same building which gives rise to another, while area 3 is a later renovation of the entire building which gives rise to another.
Capital works are taken to begin when the first step in the construction phase starts. For example, the pouring of foundations or sinking of pilings for a building.
Note 1: Capital works begun after 15 September 1987 are taken to have begun before 16 September 1987 in certain circumstances. See section 43-220.
Note 2: The time when capital works begin is relevant for determining whether the capital works qualify for deduction, the use to which those works must be put, the rate of deduction and the calculation mechanism used. However, the time when capital works begin does not limit what qualifies as construction expenditure.
(1) A pool of construction expenditure is so much of the *construction expenditure incurred by an entity on capital works as is attributable to the *construction expenditure area.
(2) In applying subsection (1) in a case to which subsection 43-75(3) (dealing with purchases from speculative builders) applies, assume that the expenditure incurred by the other entity was capital expenditure, but that the limitations in subsection 43-70(2) (which sets out types of expenditure that are not *construction expenditure) still apply to the other entity’s expenditure.
Note: The builder’s profit margin does not form part of the construction expenditure of the purchaser.
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Column 1 Date capital works begin |
Column 2 Type of capital works |
Column 3 Intended use on completion |
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Time period 1: |
Hotel building |
For use by any entity wholly or mainly to operate a hotel, motel or guest house that has at least 10 bedrooms that are for use wholly or mainly to provide short-term accommodation for travellers. |
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Apartment building |
The building consisted of: (a) at least 10 apartments, units or flats each of which was for use wholly or mainly to provide short-term accommodation for travellers; or (b) at least 10 apartments, units or flats each of which was for use for that purpose and facilities that are wholly or mainly for use in association with providing short-term accommodation for travellers in those apartments, units or flats. |
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Column 1 Date capital works begin |
Column 2 Type of capital works |
Column 3 Intended use on completion |
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Time period 2: |
Hotel building |
As for time period 1. |
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Apartment building |
As for time period 1. |
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Non-residential building
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For: (a) use by the entity that incurred the expenditure for the (b) disposal by that entity to another entity for use by the other entity for the purpose of producing assessable income or exempt income. |
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Time period 3: 18/7/85 to 20/11/87 (inclusive) |
Any building |
For: (a) use by the entity that incurred the expenditure for the (b) disposal by that entity to another entity for use by the other entity for the purpose of producing assessable income or exempt income; or (c) use by an entity wholly or mainly for, or in association with, residential accommodation. |
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Time period 4: 21/11/87 to 26/2/92 (inclusive) |
Any building |
For: (a) use by the entity that incurred the expenditure for the (b) disposal by that entity to another entity for use by the other entity for the purpose of producing assessable income or exempt income; or (c) use by an entity wholly or mainly for, or in association with, residential accommodation; or (d) use by the entity that incurred the expenditure to carry on *research and development activities by or for that entity, or for disposal by that entity to another entity for use by the other entity for carrying on research and development activities by or for the other entity. |
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Time period 5: 27/2/92 to 18/8/92 (inclusive) |
Hotel building |
As for time period 1. |
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Apartment building |
As for time period 1. |
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Other buildings |
As for any building in time period 4. |
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Structural improvements |
As for any building in time period 4. |
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Column 1 Date capital works begin |
Column 2 Type of capital works |
Column 3 Intended use on completion |
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Time period 6: 19/8/92 to 30/6/97 (inclusive) |
Hotel building |
As for time period 1. |
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Apartment building |
As for time period 1. |
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Other buildings |
As for any building in time period 4. |
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Structural improvements |
As for any building in time period 4. |
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Environment protection earthworks |
As for any building in time period 4. |
Note: There are special rules that explain or qualify the uses described in Column 3 of this Table. These rules are set out in Subdivision 43-E (sections 43-155 to 43-195). For example:
(1) A hotel building is:
(a) a building begun after 21 August 1979 and before 18 July 1985, or after 26 February 1992 and before 1 July 1997, that, at the time of completion of its construction, was intended to be used in the way referred to in Column 3 of Table 43-90 (intended use at completion) for a hotel building; or
(b) a building begun after 30 June 1997 and that, in the income year, is used in the way referred to in Column 3 (time period 2) of Table 43-145 (use in the 4% manner) for a hotel building.
(2) An apartment building is:
(a) a building begun after 21 August 1979 and before 18 July 1985, or after 26 February 1992 and before 1 July 1997, that, at the time of completion of its construction, was intended to be used in the way referred to in Column 3 of Table 43-90 for an apartment building; or
(b) a building begun after 30 June 1997 and that, in the income year, is used in the way referred to in Column 3 (time period 2) of Table 43-145 for an apartment building.
43-100 Certificates by Industry Research and Development Board
A certificate by the Industry Research and Development Board established under the Industry Research and Development Act 1986 stating that activities carried on by or for an entity were or were not *research and development activities is conclusive for the purposes of this Division.
Subdivision 43-C—Your area and your construction expenditure
What this Subdivision is aboutThis Subdivision explains your area and your construction expenditure.
Table of sections
43-110 Explanatory material
Operative provisions
43-115 Your area and your construction expenditure—owners
43-120 Your area and your construction expenditure—lessees and quasi-ownership right holders
43-125 Lessees’ or right holders’ pools can revert to owner
43-130 Identifying your area on acquisition or disposal
You can only get a deduction under this Division for an income year if you own, lease or hold part of a *construction expenditure area of capital works. The area you own, lease or hold is called your area.
In working out your deductions, you must identify *your area for each *construction expenditure area of the capital works.
*
Your area may comprise the whole of the *construction expenditure area or part of it. Your area and your construction expenditure—owners(1) Your area is the part of the *construction expenditure area that you own.
(2) Your construction expenditure is the portion of the *pool of construction expenditure that is attributable to your area.
43-120 Your area and your construction expenditure—lessees and quasi-ownership right holders
Own expenditure
(1) Your area is the part of the *construction expenditure area that you lease, or hold under a *quasi-ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency, and that:
(a) is attributable to a *pool of construction expenditure that you incurred; and
(b) you have continuously leased or held since the construction was completed.
Earlier lessees’ or holders’ expenditure
(2) Your area is the part of the *construction expenditure area that you lease, or hold under a *quasi-ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency, and that:
(a) is attributable to a *pool of construction expenditure incurred by another lessee or holder of a quasi-ownership right over land; and
(b) has been continuously leased or held since the construction was completed by the lessee or holder who incurred the expenditure or an assignee of that lessee’s lease or that holder’s quasi-ownership right over land.
(3) Your construction expenditure is the portion of the *pool of construction expenditure that is attributable to your area.
43-125 Lessees’ or right holders’ pools can revert to owner
(1) An amount that relates to a *pool of construction expenditure that arises as a result of expenditure incurred by a lessee or a holder of a *quasi-ownership right over land:
(a) can only be deducted by a lessee or a holder of a quasi-ownership right over land who satisfies subsection 43-120(1) or (2); and
(b) cannot be deducted by the owner of the capital works while there is a lessee or a holder of a quasi-ownership right over land who satisfies that subsection.
(2) The owner of the capital works may deduct an amount that relates to that pool if there is no longer a lessee or a holder of a *quasi-ownership right over land who satisfies subsection 43-120(1) or (2).
43-130 Identifying your area on acquisition or disposal
There will be a separate *your area at each time in an income year when you:
(a) acquire an additional part of a *construction expenditure area; or
(b) dispose of some but not all of a construction expenditure area.
Example: You own half of a building (part A) throughout the income year, and you acquire the other half (part B) on 1 January. This section ensures that part A is your area for the entire year and that part B is your area for the second 6 months of the year.
Note: This ensures that the same area is not counted twice in calculating your deduction. You will have to make separate deduction calculations if you have identified more than one area as your area of the capital works.
Subdivision 43-D—Deductible uses of capital works
What this Subdivision is aboutYou can only get a deduction under this Division if you use your area in a way described in Table 43-140 or 43-145 of this Subdivision.
Table of sections
Operative provisions
43-140 Using your area in a deductible way
43-145 Using your area in the 4% manner
43-150 Meaning of industrial activities
Operative provisions
Using your area in a deductible wayThe following table sets out the way you must use
*your area in an income year for a deduction to be allowed under section 43-10 (the main deduction provision). The relevant use depends on the time when the capital works began (Column 1) and the type of capital works (Column 2). Column 3 sets out the use.
Table 43-140—Current year use
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Column 1 Date capital works begin |
Column 2 Type of capital works |
Column 3 Use of your area at some time in the income year |
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Time period 1: After 30/6/97 |
Any capital works |
You use *your area for the purpose of:(a) producing assessable income; or (b) carrying on |
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Time period 2: 27/2/92 to 30/6/97 (inclusive) |
* Hotel building |
You use *your area for the *purpose of producing assessable income. |
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* Apartment building |
You use *your area for the *purpose of producing assessable income. |
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Other capital works
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You use *your area for the purpose of:(a) producing assessable income; or (b) carrying on |
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Column 1 Date capital works begin |
Column 2 Type of capital works |
Column 3 Use of your area at some time in the income year |
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Time period 3: Before 27/2/92 |
* Hotel building |
You use *your area for the *purpose of producing assessable income and:(a) all or part of that area 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. |
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* Apartment building |
You use *your area for the *purpose of producing assessable income and:(a) that area is, is part of or contains an apartment, unit or flat that is used or available for use by any entity wholly to provide short-term accommodation for travellers, and you own or lease at least 9 other apartments, units or flats in the building that are used or available for use by any entity wholly to provide short-term accommodation for travellers; or (b) that area is, is part of or contains a facility that is used or available for use by any entity wholly or mainly in association with providing short-term accommodation for travellers in apartments, units or flats in the building that are used in the way described in paragraph (a). |
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Column 1 Date capital works begin |
Column 2 Type of capital works |
Column 3 Use of your area at some time in the income year |
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Other capital works |
You use *your area for the purpose of:(a) producing assessable income; or (b) carrying on |
Note: There are special rules that explain or qualify the uses described in Column 3 of this Table. These rules are set out in Subdivision 43-E (sections 43-155 to 43-195). For example:
You use a part of *your area in the 4% manner if you use it as described in the following Table. The relevant use depends on the time when the capital works began (Column 1) and the type of capital works (Column 2). Column 3 sets out the use.
Table 43-145—Use in the 4% manner
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Column 1 Date capital works begin |
Column 2 Type of capital works |
Column 3 Use of a part of *your area at some time in the income year |
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Time period 1: After 30/6/97 |
Capital works that are buildings |
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. |
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Column 1 Date capital works begin |
Column 2 Type of capital works |
Column 3 Use of a part of *your area at some time in the income year |
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You use the part of *your area for the *purpose of producing assessable income and:(a) that part is, is part of or contains an apartment, unit or flat that is used or available for use by any entity wholly to provide short-term accommodation for travellers, and you own or lease at least 9 other apartments, units or flats in the building that are used or available for use by any entity wholly to provide short-term accommodation for travellers; or (b) that part is, is part of or contains a facility that is used or available for use by any entity wholly or mainly in association with providing short-term accommodation for travellers in apartments, units or flats in the building that are used in the way described in paragraph (a). |
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Column 1 Date capital works begin |
Column 2 Type of capital works |
Column 3 Use of a part of *your area at some time in the income year |
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You use the part of *your area for the *purpose of producing assessable income, and that part is used by any entity:(a) wholly or mainly for (b) to provide meal rooms, rest rooms, first aid rooms, change rooms or similar facilities that are wholly or mainly for use by: (i) workers employed wholly or mainly to undertake the work directly involved in carrying out industrial activities; or (ii) the immediate supervisors of those workers; or (c) wholly or mainly as office accommodation for the immediate supervisors of those workers. |
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Column 1 Date capital works begin |
Column 2 Type of capital works |
Column 3 Use of a part of *your area at some time in the income year |
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Time period 2: 27/2/92 to 30/6/97 (inclusive) |
* Hotel building |
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. |
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* Apartment building |
You use the part of *your area for the *purpose of producing assessable income and:(a) that part is, is part of or contains an apartment, unit or flat that is used or available for use by any entity wholly to provide short-term accommodation for travellers, and you own or lease at least 9 other apartments, units or flats in the building that are used or available for use by any entity wholly to provide short-term accommodation for travellers; or (b) that part is, is part of or contains a facility that is used or available for use by any entity wholly or mainly in association with providing short-term accommodation for travellers in apartments, units or flats in the building that are used in the way described in paragraph (a). |
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Column 1 Date capital works begin |
Column 2 Type of capital works |
Column 3 Use of a part of *your area at some time in the income year |
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Other buildings |
You use the part of *your area for the *purpose of producing assessable income, and that part is used by any entity:(a) wholly or mainly for (b) to provide meal rooms, rest rooms, first aid rooms, change rooms or similar facilities that are wholly or mainly for use by: (i) workers employed wholly or mainly to undertake the work directly involved in carrying out industrial activities; or (ii) the immediate supervisors of those workers; or (c) wholly or mainly as office accommodation for the immediate supervisors of those workers. |
Note: There are special rules that explain or qualify the uses described in Column 3 of this Table. These rules are set out in Subdivision 43-E (sections 43-155 to 43-195). For example:
Industrial activities
means:(a) any of the following activities (core activities):
(i) operations where manufactured items are derived from other goods even if those manufactured items are themselves used as parts or materials in the manufacture of other items;
(ii) operations (other than packing, placing in containers or labelling) by which manufactured items are brought into or maintained in the form or condition in which they are sold or used, even if they are for sale or use as parts or materials in the manufacture of other items;
(iii) the separation of a metal or a compound of a metal from its ore (not including crushing, grinding, breaking, screening or sizing to facilitate that separation) or the treatment or processing of a metal or a compound of a metal after its separation;
(iv) for a metal or a compound of a metal not requiring separation—applying to the metal or compound a treatment or process which, if the metal or compound had required separation, would not have been applied until after the separation;
(v) refining petroleum;
(vi) scouring or carbonising wool;
(vii) milling timber;
(viii) freezing primary products;
(ix) printing, lithographing or engraving, or a similar process, in the course of carrying on a business as a publisher, printer, lithographer or engraver;
(x) curing meat or fish;
(xi) producing chilled or frozen meat;
(xii) pasteurising milk;
(xiii) canning or bottling foodstuffs;
(xiv) producing electric current, hydraulic power, steam, compressed air or gases (other than natural gas) for the purpose of sale, or use wholly or mainly in carrying on another activity mentioned in this paragraph; or
(b) any of the following activities:
(i) the packing, placing in containers or labelling of any goods resulting from the carrying on of core activities;
(ii) the disposal of waste substances resulting from the carrying on of core activities;
(iii) the cleansing or sterilising of bottles, vats or other containers used by the entity to store goods to be used in carrying on core activities or goods resulting from the carrying on of core activities;
(iv) the assembly, maintenance, cleansing, sterilising or repair of property used in carrying on core activities;
(v) the storage, within premises in which core activities are carried on, or premises contiguous to those premises, of goods in carrying on core activities, goods in relation to which core activities have commenced but not finally been completed or goods resulting from core activities;
but does not include the preparation of food or drink (whether for consumption on the premises where it is prepared or elsewhere) in, or in premises occupied in connection with, a hotel, motel, boarding house, catering establishment, restaurant, cafe, milk-bar, coffee shop, retail shop or similar establishment.
Subdivision 43-E—Special rules about uses
What this Subdivision is aboutThis Subdivision contains special rules about uses of capital works. It is relevant to whether you can get a deduction for capital works and also to the rate of that deduction. The rules in this Subdivision affect the uses of capital works described in Tables 43-90, 43-140 and 43-145.
Table of sections
Operative provisions
43-160 Your area is used for a purpose if it is maintained ready for use for the purpose
43-165 Temporary cessation of use
43-170 Own use—capital works other than hotel and apartment buildings
43-175 Own use—hotel and apartment buildings
43-180 Special rules for hotel and apartment buildings
43-185 Residential or display use
43-190 Use of facilities not commonly provided, and of certain buildings used to operate a hotel, motel or guest house
43-195 Use for research and development activities must be in connection with a business
Operative provisions
Your area is used for a purpose if it is maintained ready for use for the purposeA 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.
Note 1: Construction must be complete before you can deduct an amount, see section 43-30.
Note 2: This section affects Tables 43-140 and 43-145.
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 if its use for that purpose or in that manner temporarily ceases because of:
(a) the construction of an extension, alteration or improvement, or the making of repairs; or
(b) seasonal or climatic factors.
Note: This section affects Tables 43-140 and 43-145.
(1) A part of capital works, other than a *hotel building or an *apartment building, is taken not to be used for the *purpose of producing assessable income if that part is for use mainly for, or in association with, residential accommodation by you or an *associate.
Note: This subsection affects Tables 43-140 and 43-145.
(2) Subsection (1) does not apply to use by an
*associate under an *arrangement:(a) to which you and the associate are parties; and
(b) that is of a kind that the parties could reasonably be expected to have entered into if they had been dealing with each other at arm’s length; and
(c) that was not entered into for the purpose of obtaining a deduction under this Division.
(3) If property that constitutes the whole or part of capital works, other than a
*hotel building or an *apartment building, is part of an individual’s home, the property is taken to be used, or for use, wholly or mainly for or in association with residential accommodation.Note: This subsection affects Tables 43-90 and 43-140.
(1) An entity is taken not to have used a bedroom in a *hotel building, or an apartment, unit or flat in an *apartment building, for the *purpose of producing assessable income at a time if, at that time, the bedroom, apartment, unit or flat is used, or reserved for use, by:
(a) the entity; or
(b) if the entity is a partnership—any of the partners in the partnership.
Note: This subsection affects Tables 43-140 and 43-145.
(2) Also, an entity is taken not to use a bedroom in a
*hotel building, or an apartment, unit or flat in an *apartment building for any purpose at a time if:(a) at that time, a right to use or occupy the bedroom, apartment, unit or flat was vested in the entity; and
(b) that right was vested in the entity because the entity was, at that time, a member of a company, a beneficiary of a trust estate or a partner in a partnership.
Note: This subsection affects Tables 43-90, 43-140 and 43-145.
Special rules for hotel and apartment buildingsRules about counting rooms or apartments etc.
(1) 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.
Note: This subsection ensures that a limited period of non-short-term traveller accommodation use will be disregarded in counting the number of rooms provided the bedroom, apartment, unit or flat is used mainly for short-term traveller accommodation.
(2) For the purpose of counting the number of bedrooms in a
*hotel building, if 2 or more rooms that are bedrooms or include a bedroom are for use together as a suite of rooms, the suite is taken to constitute one bedroom.(3) Despite subsection 43-50(3) (which treats you as not being the owner of certain capital works), you can still count an apartment, unit or flat that you are taken to have disposed of under section 160ZSA of the Income Tax Assessment Act 1936 in working out whether you own or lease at least 10 apartments, units or flats in an
*apartment building if you own or lease at least one other apartment, unit or flat in the building.Note 1: Section 160ZSA allows holders of estates in fee simple and lessees of land who have certain leases or subleases with terms exceeding 50 years to elect to treat the grant of the lease or sublease as the disposal of an asset for the purposes of the capital gains and losses provisions.
Note 2: Subsection 43-50(3) treats you as not being the owner of capital works that are the subject of such a lease.
Rules about hotel or apartment complexes
(4) A group of buildings that constitutes a complex of buildings is taken to be one *hotel building or *apartment building, and none of the buildings in the group is taken to be a separate building.
(5) The construction of a *hotel building or *apartment building is taken to be an extension of another building if, after completion of the construction, those buildings are taken to be one building under subsection (4).
Note: Subsections (4) and (5) ensure that a hotel or apartment building that provides short-term traveller accommodation in detached buildings will be treated as a single building so that the 10 hotel room/apartment test is applied to the complex as a whole. It also has the effect that the complex as a whole must be completed before there can be a construction expenditure area.
Rules about facilities not commonly provided in Australia
(6) If a *hotel building contains a facility of a kind that is not commonly provided in a hotel, motel or guest house in Australia, the facility is taken not to be used or for use to operate a hotel, motel or guest house.
(7) If an *apartment building contains a facility of a kind that is not commonly provided in a hotel, motel or guest house in Australia, the facility is taken not to be a facility for use in association with providing short-term accommodation for travellers in apartments, units or flats.
Note: Subsections (6) and (7) exclude areas such as casinos from the construction expenditure area of a hotel building or apartment building.
(1) A building, other than a *hotel building or an *apartment building, or an extension, alteration or improvement to such a building, begun after 19 July 1982 and before 18 July 1985 is taken not to be used for the *purpose of producing assessable income or exempt income if it is used or for use wholly or mainly for exhibition or display in connection with:
(a) the sale of all or part of any building; or
(b) the lease of all or part of any building for use wholly or mainly for or in association with residential accommodation.
Note: Subsection (1) affects time period 2 in Table 43-90 and time period 3 in Table 43-140.
(2) A building, other than a
*hotel building or an *apartment building, begun after 19 July 1982 and before 18 July 1985 is taken not to be used for the *purpose of producing assessable income if it is used or available for use wholly or mainly for or in association with residential accommodation.Note: Subsection (2) affects time period 2 in Table 43-90 and time period 3 in Table 43-140.
(3) A building, other than a
*hotel building or an *apartment building, begun after 17 July 1985 and before 1 July 1997 is taken not to be used for the *purpose of producing assessable income if it is used or for use wholly or mainly for exhibition or display in connection with the sale of all or part of any building.Note: Subsection (3) affects time periods 2 and 3 in Table 43-140.
Use of facilities not commonly provided, and of certain buildings used to operate a hotel, motel or guest house(1) A facility in a *hotel building or an *apartment building that is not commonly provided in a hotel, motel or guest house in Australia is taken not to be used, or for use, for or in association with residential accommodation if the facility is part of a building begun after 19 July 1982 and before 18 July 1985.
Note: This subsection means that, for time period 2 in Table 43-90, a facility referred to in subsection 43-180(6) or (7) (dealing with facilities not commonly provided in Australia) is taken to be a non-residential building if it satisfies the use test in Column 3 of that table for a building of that kind, and is therefore eligible for deduction even though it would ordinarily be taken to be used for residential accommodation.
(2) A building, other than a
*hotel building or an *apartment building, begun after 19 July 1982 and before 18 July 1985 that is used, or for use, wholly or mainly for the purpose of operating a hotel, motel or guest house is taken to be used or for use wholly or mainly for, or in association with, residential accommodation.Note: This subsection ensures that hotels, motels and guest houses begun in the specified time period that do not satisfy the tests for hotel and apartment buildings (for example, because they had fewer than 10 bedrooms or apartments) do not qualify for a deduction under this Division.
Use for research and development activities must be in connection with a businessYou are taken not to use capital works for *research and development activities unless you do so in connection with a business that you carry on for the *purpose of producing assessable income.
Note: This section affects Tables 43-90 and 43-140.
Subdivision 43-F—Calculation of deduction
What this Subdivision is aboutThis Subdivision shows you how to calculate the amount of a deduction under section 43-10. The calculations must be made separately for each area that is identified as your area.
There are 2 separate calculation provisions: One for capital works begun before 27 February 1992; and the other for capital works begun after 26 February 1992.
Table of sections
43-205 Explanatory material
Operative provisions
43-210 Deduction for capital works begun after 26 February 1992
43-215 Deduction for capital works begun before 27 February 1992
43-220 Capital works taken to have begun earlier for certain purposes
Explanatory materialCapital works begun before 27 February 1992
The calculation for these works is based on *your construction expenditure and the applicable rate of deduction. There can be only one rate of deduction that applies to *your area. However, reductions of deductions may apply.
You must reduce your deduction for any period in the income year that you did not own *your area and use it in the way described in Table 43-140 (Current year use). Because there are 2 use tests in Table 43-140 for *hotel buildings and *apartment buildings (a general income producing test and a more specific hotel and short-term traveller accommodation use test), there are 2 reduction steps.
The first step reduces your deduction if part of *your area was not used as a *hotel building or *apartment building. The second step reduces the deduction to the extent that your area is used only partly for the *purpose of producing assessable income. This occurs, for example, if you *derive both assessable and exempt income, or if part of your area is not used to produce assessable income for all or part of the period it was used as a hotel building or apartment building.
Capital works begun after 26 February 1992
The calculation for these works is based on a portion of *your construction expenditure and the applicable rate of deduction. There can be 2 rates of deduction for your area depending on the way you use it.
If 2 rates apply, there will be a separate calculation for the part of *your area used in the way described in Table 43-140 and for the part of *your area used in the way described in Table 43-145 (Use in the 4% manner). A gross deduction and subsequent reduction is calculated for each.
The reduction is the same as the second reduction for capital works begun before 27 February 1992.
Deduction for capital works begun after 26 February 1992Step 1
Calculate the amount worked out using the formula:|
Portion of your CE * days used * 0.04 |
|
---------------------------------------------- |
|
365 |
where:
portion of your CE is the portion of
days used is the number of days in the income year that:
(a) you owned or were the lessee of that part of
(b) you were the holder of that part of
*your area under a *quasi-ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency, and used that part of your area in the 4% manner.Step 2 Reduce the Step 1 amount by the extent to which the part referred to in Step 1 was used only partly for the
*purpose of producing assessable income.Note: This Step applies if:
Step 3
Calculate the amount worked out using the formula:|
Portion of your CE * days used * 0.025 |
|
---------------------------------------------- |
|
365 |
where:
portion of your CE is the portion of
days used is the number of days in the income year that:
(a) you owned or were the lessee of that part of
(b) you were the holder of that part of
*your area under a *quasi-ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency, and used that part of your area in that manner.Step 4 Reduce the Step 3 amount by the extent to which the part referred to in Step 3:
(a) for a
(b) for any other capital works—was used only partly for the purpose of
*producing assessable income or carrying on *research and development activities.Note: This Step applies if:
Step 5
Add the Step 2 and Step 4 amounts.Step 6 The amount of your allowable deduction is the lesser of your Step 5 amount or the *undeducted construction expenditure for *your area.
43-215 Deduction for capital works begun before 27 February 1992
Step 1 Calculate the amount worked out using the formula:
|
Portion of your CE * days used * applicable rate |
|
---------------------------------------------------------- |
|
365 |
where:
your CE is
days used is the number of days in the income year that you owned or were the lessee of
*your area and used it in the way that applies to the capital works under Table 43-140 (Current year use).applicable rate is:
(a) 0.04 if the capital works began after 21 August 1984 and before 16 September 1987; or
(b) 0.025 in any other case.
Note: For the purpose of working out the applicable rate, capital works begun after 15 September 1987 are taken to have begun before 16 September 1987 in certain circumstances. See section 43-220.
Step 2
This step applies only to *hotel buildings and *apartment buildings. Reduce the Step 1 amount by the extent to which:(a) for a hotel building—any part of
(b) for an apartment building—any part of
*your area was not used wholly for or in association with providing short-term accommodation for travellers.Step 3 Reduce the Step 1 or 2 amount by the extent to which:
(a) for a
(b) for any other capital works—
*your area was used only partly for the *purpose of producing assessable income or carrying on *research and development activities.Note: This Step applies if:
Step 4
The amount of your allowable deduction is the lesser of your Step 3 amount or the *undeducted construction expenditure for *your area. Capital works taken to have begun earlier for certain purposes(1) A building, other than a
*hotel building or an *apartment building, or an extension, alteration or improvement to such a building, begun after 15 September 1987 is taken to have begun before 16 September 1987 if:(a) the construction was under a contract that was entered into before 16 September 1987, or was under 2 or more contracts any of which was entered into before that date; or
(b) money was borrowed for a purpose that included the purpose of financing the construction under a contract or contracts entered into before 16 September 1987 by an entity that was, or by entities each of which was, a
(2) An entity is a qualifying investor for the construction of a building if:
(a) at the end of 15 September 1987, the entity was the owner or lessee of the land on which the building was constructed; or
(b) the entity became the owner or lessee of the land under a contract entered into before 16 September 1987.
(3) An entity is a qualifying investor for the construction of an extension, alteration or improvement to a building if:
(a) at the end of 15 September 1987, the entity was the owner or lessee of the building, or the part of the building to which the extension, alteration or improvement was made; or
(b) the entity became the owner or lessee of the building or that part under a contract entered into before 16 September 1987.
Subdivision 43-G—Undeducted construction expenditure
What this Subdivision is aboutThe undeducted construction expenditure for your area is the part of your construction expenditure you have left to write off. It is used to work out:
• the number of years in which you can deduct amounts for your construction expenditure; and
• the amount that you can deduct under section 43-40 if your area or a part is destroyed.
Table of sections
Operative provisions
43-230 Calculating undeducted construction expenditure—common step
43-235 Post-26 February 1992 undeducted construction expenditure
43-240 Pre-27 February 1992 undeducted construction expenditure
Operative provisions
Calculating undeducted construction expenditure—common step(1) Identify the date when the capital works began.
Note 1: The date determines whether your calculation is to be made under section 43-235 (for post-26/2/92 expenditure) or 43-240 (for pre-27/2/92 expenditure).
Note 2: Section 43-80 explains when capital works begin.
(2) If you are calculating a deduction under Subdivision 43-F, identify the period (use period) that:
(a) started when
(b) ended at the end of the preceding income year or, if you acquired your area during the income year, at the end of the day before the time of the acquisition.
(3) If you are calculating a deduction under Subdivision 43-H, identify the period (use period) that started at the time described in paragraph (2)(a) and ended at the time of the destruction.
Post-26 February 1992 undeducted construction expenditureStep 1 Calculate for each day in the use period the amount worked out using the formula:
|
Portion of your CE * days used * 0.04 |
|
---------------------------------------------- |
|
365 |
where:
portion of your CE is the portion of
Step 2 Calculate for each day in the use period the amount worked out using the formula:
|
Portion of your CE * days used * 0.025 |
|
---------------------------------------------- |
|
365 |
where:
portion of your CE is the portion of
Step 3 Add the aggregate of the amounts calculated under Steps 1 and 2.
Step 4 Deduct the sum of those amounts from
*your construction expenditure. The result is the undeducted construction expenditure for *your area. Pre-27 February 1992 undeducted construction expenditureStep 1 Calculate for each day in the use period the amount worked out using the formula:
|
Portion of your CE * applicable rate |
|
---------------------------------------------- |
|
365 |
where:
your CE is
applicable rate is:
(a) 0.04 if the capital works began after 21 August 1984 and before 16 September 1987; or
(b) 0.025 in any other case.
Note: For the purpose of working out the applicable rate, capital works begun after 15 September 1987 are taken to have begun before 16 September 1987 in certain circumstances. See section 43-220.
Step 2
Deduct the sum of the amounts amount calculated under Step 1 from *your construction expenditure. The result is the undeducted construction expenditure for *your area.Subdivision 43-H—Balancing deduction on destruction of capital works
What this Subdivision is aboutYou may deduct an amount for the undeducted construction expenditure for your area if your area or part of it is destroyed in the circumstances described in section 43-40.
This Subdivision shows you how to work out that deduction.
The calculations in this Subdivision are made separately for each part of the capital works that is identified as your area.
Table of sections
Operative provisions
43-250 The amount of the balancing deduction
43-255 Amounts received or receivable
43-260 Apportioning amounts received for destruction
Operative provisions
The amount of the balancing deductionStep 1
Calculate the amount (if any) by which the *undeducted construction expenditure for the part of *your area that was destroyed exceeds the amounts you have received or have a right to receive for the destruction of that part.Step 2 The Step 1 amount must be reduced if the amount you have deducted or can deduct for
*your area for any income year is calculated by applying:(a) Step 2 or 4 in section 43-210; or
(b) Step 2 or 3 in section 43-215.
The reduction under this Step must be reasonable having regard to the extent of the reduction under the other Step or Steps.
Note: The reductions referred to in sections 43-210 and 43-215 are made where you use *your area only partly for an appropriate purpose.
Amounts received or receivableThe amounts you have received or have a right to receive for the destruction of that part of *your area include:
(a) an amount received under an insurance policy or otherwise for the destruction of that part; and
(b) an amount received for disposing of property that was included in that part of your area, less any demolition expenditure incurred on the property.
43-260 Apportioning amounts received for destruction
If an amount received or receivable in respect of the destruction of property relates to both the part of *your area for which you are claiming the balancing deduction and to property:
(a) the cost of which did not form part of *your construction expenditure; or
(b) that is capital works that was not part of your area;
you must apportion the amount received or receivable to the amount that is attributable to the part of your area that was destroyed. The apportionment must be reasonable.
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