Six tips for commercial property owners at tax time

Make sure you claim depreciation deductions this financial year

There are many complex factors for commercial property investors to consider when lodging a tax return, including property depreciation.

To help you get the most out of your commercial property, here are six tax time tips on depreciation:

  1. If a commercial property was built before 1982, it’s not too old to claim depreciation

Both new and older commercial properties will attract some depreciation deductions.

Depreciation deductions can be claimed for the wear and tear of the building structure via a capital works deduction and for the plant and equipment assets contained within the property.

The Australian Taxation Office (ATO) places restrictions on claiming capital works deductions. For most commercial buildings these deductions can only be claimed if the property commenced construction after the 20th of July 1982. For traveler accommodation this date is the 21st of August 1979. Depending on the year of construction, capital works deductions can be claimed at either 2.5 or 4 per cent.

Depreciation deductions for plant and equipment assets are generally calculated based on the individual effective life for each item as well as their condition and quality. Immediate write-off and pooling rules may also apply if an asset is below a certain value, particularly for small and medium sized business owners. As plant and equipment items are rarely the same age as the property and are often replaced and updated, there can be significant deductions available.

2. Claim renovations completed by a previous owner of the property

Any renovations completed to an investment property can be claimed, even if they were completed by a previous owner. This can include items such as new plumbing, waterproofing 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.

3. Both tenants and owners are entitled to claim depreciation for any fit-out

Commercial tenants can 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 per cent 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-out can become very complicated, so it’s important to consult with an expert.

4. Don’t wait if you’ve only just purchased a property

If you’ve only just purchased a property, don’t wait until the next financial year to claim depreciation deductions. You 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’s worth consulting with an expert to find out the claims available. You can also claim the tax depreciation schedule fee straight back in the same financial year if you arrange the schedule before the 30th of June.

5. Previous years tax returns can be adjusted

If you haven’t been maximising your 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 your Accountant to make a claim.

6. Get an expert to assess the property and perform a site inspection

To ensure the correct deductions are claimed, speak with a specialist Quantity Surveyor. These experts are recognised under Tax Ruling 97/25 as one of the few professionals with the appropriate qualifications necessary to estimate construction costs for depreciation purposes. A Quantity Surveyor will inspect the property to make sure every plant and equipment asset is identified and that claims for fit-outs are correctly noted. Depreciation schedules make the process easy and enable you to claim the maximum deductions possible.

If you’d like more information on depreciation, speak with one of our staff.

Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.