With ‘working from home’ arrangements more commonplace since the start of the pandemic and social distancing now the norm, many businesses have recently altered their office layouts.
Office renovation depreciation has always offered lucrative tax deductions. But since temporary tax depreciation incentives were introduced, office renovation has become even more attractive for the businesses that occupy them.
In this post we discuss what’s happened in the office sector since the onset of the pandemic and look at an office renovation depreciation case study.
Demand for office space since the pandemic
Since early 2020, companies have been faced with the incredible challenge of shifting their office-based employees to working from home arrangements, to adhere to state-mandated COVID-19 rules put in place to protect peoples’ health.
Lockdowns and work from home orders lasted for months in some states, resulting in a great deal of office space going unused for prolonged periods. Many people held the expectation that more businesses would continue to employ either a full or hybrid working from home model, leading them to think that ongoing demand for office space would be lower than pre-pandemic.
And while there was a sharp drop in demand initially, what is interesting is that demand for office space has rebounded, despite working from home arrangements still being in place for many businesses.
Ken Morrison, Chief Executive of Property Council of Australia, said “While aggregate vacancy levels have risen slightly from 11.9 per cent to 12.1 per cent, the driver of this has been new supply of office space, not a drop in demand. The reality is that most CBD businesses continue to see the office as integral to their future, and that is reflected in the increased demand for office space over the past six months.”
So, what is driving this demand? It appears that many businesses are not just growing in staff numbers but are needing more space to accommodate for social distancing measures, even in those businesses where employees work remotely for part of the week.
While we can’t predict how long this will continue, we can rely upon the lucrative depreciation deductions available on office buildings and fit outs.
Depreciation case study
‘Business A’ is a medium-sized business entity. It leases office space occupying a partial floor of a Sydney office tower. The space was originally fitted out in 2018 (prior to the COVID-19 pandemic) and is now going to be expanded to accommodate larger collaborative workspaces, social distancing and future growth in head count.
The following table demonstrates the depreciation deductions available for the owner of the property (the landlord) and the business operating from it (Business A, the lessee).
These deductions provide a healthy boost to cash flow for both Business A and the landlord. Note the large boost in deductions for Business A in year five, which takes into account the instant asset write-off for some of the new fit out.
Some of the larger immediate deductions available to Business A from the Year 5 expansion include $60,000 for computer equipment, $33,000 for floor coverings and $14,000 for desks. Meanwhile, the landlord can continue to claim capital works deductions and plant and equipment depreciation on items such as air conditioning, lighting, switchboards and automatic doors.
Tax depreciation schedules are key to claiming the maximum depreciation deductions.
A BMT Tax Depreciation Schedule ensures commercial depreciation deductions are claimed to their full potential and compliantly by applying all industry-specific legislation. BMT also adopts current business incentives including the backing business investment and temporary full expensing depending on the business size, to ensure every cent is claimed.
BMT Tax Depreciation has optimised its commercial process to ensure both owners and tenants claim the most deductions possible. To learn more about commercial depreciation of offices, call BMT today on 1300 728 726 or Request a Quote.