COMMERCIAL PROPERTY OWNERS and tenants are often unaware they are entitled to claim deductions for the depreciation of many of the assets installed during the fit-out of a commercial property.
These deductions are important, as depreciation is a valuable source of hidden cash flow that will not only lower the burden of fit-out costs, but also assist with ongoing business expenses.
Any building (and the assets contained within it) will experience wear and tear over time.
The Australian Taxation Office (ATO) allows the owners of income producing properties to claim this wear and tear for the building structure and any easily removable plant and equipment items (assets) contained within the property. These deductions are known as ‘property depreciation’.
Commercial tenants are also eligible to claim depreciation for any fit-out they add to a property once their lease starts. Examples of common plant and equipment assets installed during a fit-out include carpets, air-conditioning units, firefighting equipment, desks, blinds, shelving and security systems.
Discover what you’re entitled to claim
Each plant and equipment item should be depreciated based on its individual effective life, as set by the ATO. However, some assets will also entitle the owner to claim an immediate write-off or to add them to a low-value pool to increase deductions sooner – if they meet certain requirements as outlined by the ATO.
For small business owners (with an aggregated turnover of less than $10 million), additional rules apply. And owners or tenants of these properties can take advantage of immediate write-offs for plant and equipment assets valued less than $20,000.
Depending on lease conditions, if a tenant vacates a building and does not remove the fit-out from the building … the owner of the property may still be able to claim any remaining depreciation for these items.
However, if a tenant’s lease stipulates that the property must be returned to its original condition at the end of the lease, the tenant can benefit by claiming any remaining depreciation on the items which are removed and scrapped from the property. This is known as “scrapping”.
How to maximise your claim
To ensure depreciation deductions are maximised, both owners and tenants of commercial properties should contact a specialist Quantity Surveyor, such as BMT Tax Depreciation, to arrange a tax depreciation schedule.
And that’s because a Quantity Surveyor can provide two separate schedules for the owner and the tenant which outline the deductions available for each party.
These deductions will benefit both parties and help them to improve their cash flow and reduce their annual holding costs.
Let’s take a look at an example of a business owner (tenant), who rented a space and installed a range of fixtures and fittings to fit the space out as a luxury clothing store.
The depreciation deductions in this case study have been calculated using the diminishing value method. They also assume that the new business owner had an aggregated turnover of more than $10 million and was not classified as a small business owner.
While the retailer spent $250,400 on the fit out of their new business, they will be able to recover a significant portion of these expenses.
In the first full financial year, they can claim $31,286 in depreciation deductions for these assets and additional deductions can be claimed in following years.
To discover what can be claimed for any investment property, simply request a quote online.