A common question asked by clients!
How do I treat for tax the cost of landscaping to improve the value of a property?
Landscaping is an improvement to the property and therefore not deductible under section 8-1.
OK, what about landscaping being deductible under Div 43 capital works over 40 years?
Or if not claimable as a capital improvement under Div 43, can we add to the cost base of the investment property as improvements and no tax deduction allowed?
Costs involved in landscaping a property are generally seen to be capital in nature. Landscaping would generally amount to an improvement to the property which would have an enduring benefit.
These expenses generally need to be added to the cost base of the property for CGT purposes under s110-25 (ie, can reduce a future capital gain on sale of the property).
You would not generally be able to claim depreciation or capital works deductions in relation to the landscaping work.
What about Div 40 depreciation claim for plant and equipment?
In order to claim depreciation deductions under Division 40, it is necessary to identify specific items of plant or equipment. Landscaping expenditure relates to the construction cost directly related to landscaping, (ie) landscape designs, landfill, Lawns, garden beds, (which create artificial landscapes, etc, which are not integral to the installation of building structures, as such not normally give rise to items of plant or other depreciating assets.
Expenditure on items that could be classified as separate depreciating assets would be, for example, pumps, water tanks, sprinkler systems, fencing, retaining walls, culverts, roads, car parks, etc, which can be claimed under either Div 40 or Div 43.
Expenditure on landscaping is unfortunately specifically excluded from the capital works expenditure under Division 43. Refer to ATO ID 2006/235 which discusses this issue.
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