COMMERCIAL building owners still remain unaware of the full taxation benefits their property could generate. One of the most worthwhile (yet often missed) deductions available is building depreciation.
As a building gets older and items within it age, they depreciate in value. The Australian Taxation Office (ATO) recognises this and allows property investors to claim deductions relating to the wear and tear on buildings and the fixtures and fittings within.
Claiming depreciation is the key to increasing the cash flow you generate from your Commercial properties.
Building write-offs can be claimed on the structure of a commercial building, so long as construction commenced after the 20th of July 1982. In cases where construction commenced before this date, depreciation can still be claimed on fixtures and fittings.
Many Commercial property owners assume they are unable to claim depreciation on their property (or receive significant deductions) because it is too old. However, there are still significant depreciation deductions available on the fixtures, fittings, plant and equipment contained within the property.
Some examples of these assets include carpets, air conditioning, blinds, hot water systems, light fittings, lifts, partitioning and bathroom accessories.
The following case study shows how depreciation can increase the cash flow of a typical commercial property.
Damien owns a Commercial office building, which was purchased for $1.1 million. He leases it to a tenant for $1800 per week (totalling approximately $94,000 per year). His expenses (including interest, rates and management fees) total approximately $124,000 per annum.
Damien had a tax depreciation schedule prepared, where the first year revealed a $40,000 deduction. The below table shows how his holding costs changed — without depreciation on the left, and with depreciation maximised on the right.
Calculations based on the diminishing value method of depreciation
This example illustrates the benefits of depreciation. Damien has improved the cash flow of this property by $231 per week, simply by claiming property depreciation.
Quantity surveyors are one of the few professionals recognised to have appropriate construction costing skills to calculate the cost of items, for the purposes of depreciation.
They are qualified by the ATO under Tax Ruling 97/25, and can ensure both building owners and tenants are able to claim the maximum depreciation deductions.
The tenants of a Commercial property are able to claim depreciation on any fit-out they add to a property, from the starting date of their lease. This includes items such as desks, shelving, fire-fighting equipment, security systems and carpet.
Commercial building owners may also be able to claim depreciation on any assets installed and left behind by previous tenants once their tenancy has ceased.
Bottom Line: Ensuring Commercial property owners and tenants do not miss out on valuable depreciation deductions can be a very complicated and intricate process, which is why it is vital for you to contact a specialist quantity surveyor.
More particularly, as 30 June approaches.
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