Consultants fee in relation to building an investment property

Is the taxpayer entitled to a capital works deduction under section 43-10 of the Income Tax Assessment Act 1997 (ITAA 1997) for a consultant fee in relation to building an investment property?

Yes. The taxpayer is entitled to deduct an amount for capital works under section 43-10 of the ITAA 1997 for a consultant fee in relation to building an investment property.

The taxpayer engaged the services of a consultant in building an investment property.

The consultant fee related to the services of the consultant in holding discussions and negotiations regarding the property, providing supervision during construction, reporting to and liaising with the taxpayer and ensuring the property was completed to the required standard and within budget.

Section 43-10 of the ITAA 1997 provides a deduction of an amount for capital works in respect of certain 'construction expenditure' incurred in respect of the construction of capital works.

Section 43-20 of the ITAA 1997 recognises three categories of capital works: • buildings or extensions, alterations or improvements to buildings; • structural improvements or extensions, alterations or improvements to structural improvements; and • environment protection earthworks.

The building of the investment property qualifies as capital works under section 43-20 of the ITAA 1997.

Section 43-70 of the ITAA 1997 defines 'construction expenditure' as capital expenditure in respect of the construction of capital works. Taxation Ruling TR 97/25 deals with the operation of Division 43 and provides at paragraph 9 that construction expenditure includes preliminary expenses such as architect fees, engineering fees, foundation excavation expenses and costs of building permits. These expenses are accepted as being in respect of the construction of capital works.

Given the tasks that the consultant is required to perform, it is considered to be similar in character to those costs accepted as preliminary expenses forming part of the construction expenditure. The consulting service is an integral part of the taxpayer's investment property project and is sufficiently related to the actual construction of the building itself as to form part of the construction expenditure.

Consequently, the taxpayer is entitled to a deduction of an amount for capital works under section 43 of the ITAA 1997 for the consultant fee in relation to building an investment property. Note: the amount of the deduction will depend on when the capital works began and the intended use on completion of the capital works.