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Building deductions

In general terms, the Tax Act allows taxpayers to claim deductions for certain construction expenditure on income-producing capital works. This is called “building write-off”, and is typically 2.5% of the relevant expenditure every year.

However, it is not just the taxpayer that incurred the original construction expenditure that can claim a deduction. This can also apply to tenants that incur construction expenditure.

If a you lease all or part of the “construction expenditure area”, and the expenditure was incurred by an earlier lessee, the construction expenditure area must have been continuously leased since the construction was completed by the lessee who incurred the expenditure or an assignee of that lessee’s lease.

Note: If the previous lease is terminated, rather than “assigned”, and a new lease is entered into, the new lessee will not be able to claim the deductions.

Keep in mind that if you are taking over a lease from a former tenant, ask them about any improvements they may have made to the building so will be able to claim the building write-off.

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