One of the main reasons hotel owners fail to take advantage of depreciation deductions is because they believe their hotel is too old to warrant making a claim.
According to Bradley Beer, the Chief Executive Officer of BMT Tax Depreciation, this myth is seeing hotel owners lose out on thousands of dollars each year and needs to be dispelled.
“Often investors make the mistake of thinking they will not receive deductions for an older property due to the date restrictions the Australian Taxation Office (ATO) place on claiming the available capital works allowance,” said Mr Beer.
“The reality is that any hotel, no matter how old the building is, will entitle its owner to valuable deductions in the form of depreciation.
“This is largely because the owner is also entitled to claim depreciation for any renovation work that has taken place since the qualifying date as well as for the plant and equipment assets contained within the property,” said Mr Beer.
Although current ATO legislation states that the owner of any commercial property built before the 20th of July 1982 cannot claim the capital works allowance as a deduction, depreciation of plant and equipment is not restricted by age. It is the condition and quality of each item which contributes to the depreciable amount.
Capital works and renovations
Older hotels will have often had some form of renovation work completed to them after the legislated dates set by the ATO. This may be minor renovations to particular rooms, work to the hotel’s structure or a large-scale renovation.
This may include things such as replacing the roof, replacing retaining walls, adding a garage, balcony or pool, or installing new floor and wall tiles as part of a bathroom remodel, for example.
If any such renovation work was completed after the qualifying date, they will attract the capital works allowance.
Depreciation of plant and equipment items
A tax depreciation schedule not only covers the capital works allowance, but also the depreciation of plant and equipment items.
Plant and equipment assets are considered to be the “removeable” fixtures and fittings in a property.
There are many plant and equipment items in hotels that will attract a depreciation claim. This would include everything from bedding, tennis court nets, pool accessories, crockery and cutlery, furniture, curtains, carpets, light fittings and computer equipment, to name just a few.
So even if a hotel is too old to claim the capital works allowance, there will likely still be thousands of dollars worth of deductions to claim from the plant and equipment assets contained within, as the depreciation of these assets is not restricted by age, but rather the condition and quality of each individual asset, as determined by the ATO.
It’s always worth enquiring about depreciation
When in doubt, hotel owners should always seek expert advice, as it’s likely that they will always have some form of depreciation to claim whether it be from capital works, renovations or plant and equipment assets.
A specialist Quantity Surveyor will perform a site inspection of the property to identify any deductions available from plant and equipment assets and for renovations that have been completed to a property of any age.
The depreciation claim from these sometimes unexpected assets can help a hotel owner’s cash flow tremendously.
And as depreciation is a non-cash deduction, the owner or investor does not need to spend any money in order to claim it.