Do you own or rent a commercial property? Make sure you know about one of the biggest tax deductions available – depreciation.
What is commercial property depreciation?
Commercial depreciation is the natural wear and tear of a commercial property and its assets over time. Depreciation reduces a commercial property owner’s taxable income, meaning they pay less tax.
Commercial depreciation can be claimed under two key categories:
1. Capital works: A property’s structure and fixed assets are depreciated using capital works deductions. The rate of depreciation varies between 2.5 and 4 per cent depending on the commercial property’s industry type. Some examples of things that are eligible for capital works deduction include walls, doors, windows and sinks.
2. Plant and Equipment: Easily removable fixtures and fittings are depreciated using plant and equipment deductions. Most of these assets are included in the tenant’s business fit-out, rather than the owner. However, BMT still find many that the owner can claim including smoke alarms, hot water systems and air-conditioning units.
The only way to benefit from lucrative depreciation deductions is with a tax depreciation schedule. This schedule only needs to be completed once and can be used each financial year.
While all properties need a site inspection, the process is more complex for commercial
Site inspections are an essential step to claiming maximum depreciation deductions and having the most comprehensive tax depreciation schedule possible. When a site inspector from a specialist quantity surveying firm physically attends the property they know what to look for. They ensure no stone is left unturned and that compliance is completely maintained.
During a commercial site inspection, the inspector will attend the property. They will analyse both the interior and exterior of the property and note down any depreciable assets, workmanship and measure the space.
Information gathered from the site inspection is used to complete the most comprehensive tax depreciation schedule possible. The inspection also plays an important role in verifying any claim in the event of an audit.
When the commercial property owner and occupant are two different parties, claiming depreciation can be difficult. Each party must only claim what they own, however only one site inspection is needed.
This is because the site inspector will make note of who owns what on the property, ensuring both the owner and tenant can claim the most. From this, BMT Tax Depreciation can create separate schedules.
If the property is leased by a new tenant, is a new schedule required?
While commercial properties are often leased long-term, there are instances where the property will be leased by new tenants.
When this happens, the owner doesn’t necessarily need a new schedule. If they make improvements between the tenancies, such as installing new air-conditioning, they can get their current schedule updated.
When a lease is changed and the previous tenant leaves their fit-out behind, the property owner may be able to claim scrapped deductions on the forgotten assets upon disposal. Scrapping is a process that allows someone to claim the remaining depreciable value of an asset instantly when it’s removed.
The new tenant can’t use the previous tenant’s schedule, so will need a tax depreciation schedule for their own fit-out.
BMT Tax Depreciation has been the commercial depreciation specialist for over twenty years. Having completed over 800,000 tax depreciation schedules Australia wide, BMT’s experience spans across all commercial industries from hospitality, commercial offices, to warehouses and medical centres.
To learn more about how commercial site inspections maximise claims, contact BMT on 1300 728 726 or Request a Quote.