The retail industry is in state of transformation, especially given the advancements in technology and the introduction of online shopping. Retail stores are having to adjust to new trends in order to stay relevant to the modern-day consumer. They need to adapt not just to survive, but to thrive too.
As online shopping becomes more prevalent and consumer demands grow, it’s important to ensure your retail space is designed to engage customers and optimise their shopping experience. Fortunately renewing or redesigning your retail fit out doesn’t have to cost you a fortune, particularly if you’re claiming depreciation correctly.
What is retail fit out?
Retail fit out refers to the assets installed in an income-producing retail property. Examples of common retail assets include carpet, air-conditioning units, firefighting equipment, blinds, shelving and security systems. Property owners and tenants are both entitled to claim depreciation deductions for these assets.
What is depreciation?
Depreciation is the natural wear and tear that occurs to a building and the assets within it over time. Legislation allows the owners of any income-producing property to claim this wear and tear as a tax deduction. For some commercial properties, depreciation deductions can total to hundreds of thousands of dollars, reducing tax liabilities and boosting cash return.
When depreciation is being applied to removable plant and equipment assets like retail fit out, it can become complicated. This is because both the owner and the tenants of the property can claim deductions for the depreciation of items.
Commercial tenants are able to claim depreciation for any retail fit out they add to a property once their lease starts. The owner can also simultaneously claim deductions for any plant and equipment items originally contained within the property.
Each plant and equipment item should be depreciated based on its individual effective life as set by the Australian Taxation Office. 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.
It’s also important for building owners and tenants to be aware of the financial benefits of scrapping existing retail fit out as this can significantly increase the deductions available.
What is scrapping?
Scrapping refers to the removal and disposal of depreciable assets from an income-producing property. When these assets are scrapped, the owners and tenants may be eligible to claim the remaining depreciable value as an immediate tax deduction.
Depending on lease conditions, if a tenant vacates a building and does not remove the retail fit out from the building, the owner of the property may still be able to claim the 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 that are removed and scrapped from the property.
How to claim depreciation for your retail fit out
Given the complexities around scrapping and depreciation for retail fit out, both owners and tenants should contact a specialist Quantity Surveyor to prepare a depreciation schedule.
Quantity Surveyors are qualified professionals who specialise in building measurement and estimating the value of construction costs. They use their skills to ascertain the costs of building works on any project.
At BMT Tax Depreciation, our qualified Quantity Surveyors can help you uncover every depreciation deduction you’re entitled to. BMT can provide separate depreciation schedules for owners and tenants that outline the deductions available for each party. These deductions can be beneficial in improving cash flow and reducing the annual costs of renting or holding the property.
To find out the depreciation deductions available to you, Request A Quote or contact one of our expert staff on 1300 728 726.