Owners and tenants of commercial property are often unaware of the depreciation deductions they can claim.
Over the last twenty years, we have clarified many questions relating to commercial property depreciation and how it’s claimed. But to save you time, here is a comprehensive list of answers to the most common questions asked by both commercial owners and tenants.
- What is commercial property depreciation?
- Can commercial property be too old to claim depreciation?
- Can both a commercial tenant and owner of the same building claim depreciation?
- Do 2017 legislation changes apply to commercial properties?
- What is temporary full expensing, and can commercial owners claim it?
- Can depreciation be claimed on owner-occupied commercial properties?
- What is scrapping?
- If the previous owner completed renovations on the commercial property, can the current owner claim depreciation on these?
What is commercial property depreciation?
Depreciation is the natural wear and tear of a property and its assets over time. This non-cash deduction can be claimed each financial year.
There are two categories that depreciation can be claimed under. The first is capital works, which refers to the structure of the property and any fixed assets. Commercial capital works deductions are often found from the building’s walls, doors, windows, toilets and air-conditioning ducting.
The second depreciation category is plant and equipment. This versatile component covers the property’s easily removable or mechanical fixtures and fittings. Some commercial plant and equipment assets include floor coverings, desks, shelving, kitchen appliances and window coverings.
Can commercial property be too old to claim depreciation?
No, regardless of age all commercial properties hold depreciation entitlement. It’s always worth asking the question.
Commercial properties where construction commenced after 20 July 1982 are eligible for all capital works deductions. If the property was constructed before this date, capital works deductions may still be available through any improvements made, for example retiling a bathroom or replacing a window. This is in addition to all eligible plant and equipment assets which can be claimed no-matter the age.
Can both a commercial tenant and owner of the same building claim depreciation?
Yes. The owner can claim depreciation on the property’s structure and any assets they own that are fixed to the building like hot water systems, air-conditioners and lights. The tenant can claim depreciation on the assets they own within their fit-out.
BMT Tax Depreciation ensure both parties claim all depreciation deductions available and in a compliant way by conducting physical site inspections.
Do 2017 depreciation legislation changes apply to commercial properties?
The short answer is no.
Depreciation legislation introduced in 2017 changed the way residential investors can claim depreciation for plant and equipment assets. The changes mean if they exchanged contracts for a second-hand investment property after 7:30pm on 9 May 2017, they can’t claim depreciation on the property’s existing plant and equipment assets.
The good news is that commercial investors and tenants aren’t affected by the legislation change. They can still claim any available depreciation on all existing plant and equipment assets.
What is temporary full expensing, and can commercial owners claim it?
The temporary full expensing measure is currently in place until the end of the 2022-23 financial year.
This incentive allows businesses that purchase plant and equipment assets from 6 October 2020 to 1 July 2023 to instantly write the asset’s cost as a tax deduction. Any business with an aggregated turnover of up to $5 billion can take advantage of full expensing.
Operating a business is the key eligibility requirement. Commercial property owners don’t always run a business and therefore can’t always claim full expensing.
Can depreciation be claimed on owner-occupied commercial properties?
Yes. For businesses in the position to do so, owning and occupying the commercial property they operate from can be a financially viable move.
In this scenario, they can still claim both the capital works and plant and equipment deductions available. This is sometimes misunderstood due to residential owner-occupiers being unable to claim depreciation.
What is scrapping?
The owner of a ‘disposed’ asset that has un-deducted depreciable value can claim this entire amount as an immediate deduction. This process is called scrapping and can boost cash flow by thousands in just one year. Scrapping can occur if the property is renovated, repaired or a commercial tenant has moved out.
To put it into practice: If a commercial owner completed a renovation disposed of carpet that had an un-deducted depreciable value of $2,000, they can claim the $2,000 in the same year.
If the previous owner completed renovations on the commercial property, can the current owner claim depreciation on these?
Yes. Anything that’s part of a previous renovation will be estimated and the available depreciation will be determined. This includes items which may not be so obvious, for example, new plumbing and updated electrical wiring.
BMT has completed thousands of tax depreciation schedules for commercial property owners and tenants. These schedules have been across all different commercial industries from hospitality, manufacturing to healthcare and public transport facilities.
Start claiming commercial depreciation and contact BMT today on 1300 728 726 or Request a Commercial Quote.