AS WE ENTER February, many investors are now implementing their annual New Year’s resolutions.
Commercial property owners often think about the ways they can reduce the costs of owning their property and running their business. However, when they do so, the deductions they can claim via depreciation are not always top of their list.
Many commercial property owners still do not maximise the depreciation deductions available from their commercial property, so this is a very good reason why they should add requesting a tax depreciation schedule to their annual resolutions for next year.
Claiming depreciation from commercial properties can be quite complicated.. There are many factors to consider which can easily lead to incorrect claims being made and deductions not being maximised, particularly when property depreciation is involved.
To assist the owners of commercial investment properties, here are six tips on property depreciation to consider in the New Year:
1. Pre-1982 Commercial property is not too old to claim depreciation
Both new and older commercial properties will attract some depreciation deductions. It is a myth that older properties do not attract a claim.
Although the Australian Taxation Office (ATO) places restrictions on claiming capital works deductions (depreciation for the structural element of a property for example roofs, walls and floors) there are no date restrictions for claiming depreciating plant and equipment assets.
The ATO advises that the owner of any commercial property in which construction commenced after 20 of July 1982 can claim capital works deductions.
Depreciation deductions for plant and equipment assets are calculated based on the individual effective life for each item set by the ATO.
Deductions for plant and equipment are also dependent on each assets condition and quality. As these items are rarely the same age as the property, generally having been updated over time, there are often significant deductions available to the owner for plant and equipment depreciation claims.
2. Claim renovations done by a previous owner of the property
Any renovations completed to an investment property can also be claimed, even if they were completed by a previous owner. This includes items which may not be obvious. For example new plumbing, water-proofing or updated electrical wiring.
For capital improvements of a structural nature to qualify as capital works deductions, the renovation must have commenced within the qualifying dates set by the ATO.
Recently installed plant and equipment items are also likely to receive higher depreciation deductions due to the increased costs involved in purchasing and installing these assets as well as the condition the assets are likely to be in when a specialist Quantity Surveyor makes their assessment.
3. Both tenants & owners can claim depreciation for any fit-out
Commercial tenants are able to claim depreciation for any fit-out they add to a property once their lease commences. This includes items such as desks, blinds, shelving, carpets, vinyl, fire fighting equipment and security systems.
If lease conditions mandate a tenant return the property to its original condition, they may also be able to claim a write-off for any remaining depreciable value available on scrapped assets.
This 100% deduction must be done in the same year as the item is removed from the property.
Any assets a tenant leaves behind after the tenancy has ended can also be claimed by the commercial property owner. Deductions for fit-outs can become very complicated, so it is important to consult with an expert.
4. Don’t wait if you have only just purchased a property
Often commercial property owners will wait until the next financial year to claim depreciation deductions if they have only just purchased a property. However by doing so, they could miss out on valuable cash that can be particularly beneficial after outlaying substantial funds to secure the property.
Specialist Quantity Surveyors use legislative tools, for example immediate write-off and low-value pooling, to make partial year claims more beneficial to property owners.
It is worth consulting an expert to find out what claims are available. Commercial property owners can also claim the tax depreciation schedule fee straight back in the same financial year if they arrange the schedule before the 30th of June.
5. Previous years tax returns can be adjusted
If a commercial property investor has not been maximising their deductions and claiming depreciation, the previous two financial year’s tax returns can be amended. A tax depreciation schedule can provide the details of any deductions missed for a commercial property owners Accountant to make a claim.
6. Get an expert to assess the property and perform a site inspection
To ensure that the correct deductions are claimed, make sure to speak with a specialist.
Quantity Surveyors are one of the few professionals recognised with the appropriate qualifications to estimate the construction costs of a building for depreciation purposes.
They will inspect the property to make sure every plant and equipment asset is identified and that claims for fit-outs are correctly noted for both the building owner and the tenant’s claim.
These Depreciation schedules make the process easy for both the owners, tenants and their Accountants to claim the maximum deductions possible for each party.
Bottom Line: Commercial property owners can get a free tax depreciation estimate by using the BMT Tax Depreciation Calculator. The calculator is available for online or to download as an app by clicking here.