Capital works include the construction, extension, alteration and improvement of any capital asset (such as buildings, dams and roads) and structural improvements such as fences, retaining walls and sealed driveways.
Does the SMSF have deductible or non-deductible capital works expenditure?
No | Leave D1 and D2 blank. Go to E1 and E2. |
Yes | Read on. |
Write at D1 and D2, as required, the amount that the SMSF calculated in 2020–21 for capital works expenditure.
Do not include at D1 or D2 capital works expenditure that you can include at another question in section C.
D1 Deductible capital works expenditure
Write at D1 the amount of deductible capital works expenditure. For more information about amounts that are deductible, see Appendix 1: Capital works expenditure.
Do not include at D1 capital works expenditure (or any part of such expenditure) that relates to earning:
- foreign income (see Expenses that relate to foreign income)
- non-arm's length income (see Expenses that relate to non-arm's length income)
If the SMSF paid retirement phase income stream benefits to a member, refer to How expenses are treated when an SMSF has ECPI before you claim a deduction for capital works expenditure.
D2 Non-deductible capital works expenditure
Write at D2 the amount of capital works expenditure that is not deductible. For example, if the SMSF uses the capital works area for the purposes of earning exempt income, such as exempt current pension income.
Example 'SMSF with no ECPI': Capital works expenditure
SMSF D has no exempt current pension income, foreign income or non-arm's length income.
SMSF D spent $40,000 in 2020–21 to renovate its investment property. It is able to deduct 2.5% of this expenditure for 2020–21 (that is, 2.5% of 40,000 = $1,000).
SMSF D reports:
D1 Deductible capital works expenditure $1,000
D2 Non-deductible capital works expenditure (Blank)
End of example
Example 'SMSF with ECPI': Capital works expenditure
SMSF DD pays retirement phase income stream benefits to one of its three members and some of its income is exempt from income tax under the exempt current pension income rules.
SMSF DD spent $40,000 in 2020–21 to renovate its investment property. SMSF DD calculates 2.5% of this expenditure for 2020–21 (that is, 2.5% of 40,000 = $1,000).
Using the rules described at How expenses are treated when an SMSF has ECPI SMSF DD determines that $250 of the capital works expenditure relates to earning its exempt current pension income.
SMSF DD reports:
D1 Deductible capital works expenditure $750
D2 Non-deductible capital works expenditure $250
End of exampleContinue to: E1 and E2 Decline in value of depreciating assets