» Commercial Property

Repurposing for demand: Office to residential conversions

BMT team — Fri, 23 Feb 2024 04:51:40 +0000

The evolving work landscape has led to businesses reassessing their office footprint, resulting in a decrease in office leasing. While the demand for A-grade or prime office space remains solid in some areas, older or subprime office buildings are struggling to fill their floors, with research showing a 6% decrease in demand from a year ago and a 24% decrease from pre-pandemic levels in cities globally. Some owners may consider adaptive reuse as a viable option to preserve the building, with popular options including hotel conversions, data centres and the office to residential conversion. Repurposing office buildings into residential units is gaining traction worldwide as a solution to housing shortages. In New York, the Office Adaptive Reuse Task Force is focused on converting outdated office spaces into housing, aiming to create 40,000 apartments from unused office buildings. New data indicates that 250 million square feet of vacant office space in Europe’s top 35 cities can potentially yield 500,000 homes and Australia is in a similar position. NSW office vacancy rates are currently above 13% and a recent study by the Property Council of Australia found that almost 90 Melbourne CBD office buildings are ‘ripe for adaptive reuse’, which could create up to 12,000 new homes in locations where amenity, transport connections and jobs already exist. In Melbourne the superannuation fund Australian Unity recently converted its headquarters into a seniors residential complex and the TNT Apartments towers at Redfern in Sydney were converted from a commercial space to 181 residential apartments. Though the high costs and regulatory challenges have been a deterrent for investors so far, governments worldwide are incentivising such conversions, and policymakers are working to simplify regulatory obstacles, which will hopefully reach Australian shores soon. In addition, the depreciation deductions available on these office to residential conversions will also increase the investor’s cash flow. Below is an estimate of the depreciation deductions that an investor might earn when converting a 1,200 square metre office space in North Sydney to 12 x 100 square metre residential units. Each includes two bedrooms, one bathroom, a kitchen with modern appliances and a connecting lounge area. To maximise the depreciation deductions on your office to residential conversion or to find out more about BMT and the additional services we offer, contact the team on 1300 728 726 or Request a Quote.

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5 ways to improve commercial property performance

BMT team — Thu, 28 Sep 2023 05:12:21 +0000

Businesses are finding themselves in a position where improving the performance of their commercial property is paramount. Improving the performance of a commercial property can lead to an increase in value, better occupancy rates, and a healthier bottom line. In this article, BMT Tax Depreciation explore how to increase commercial property performance and how claiming depreciation can help businesses recoup costs. 1. Renovate Renovating and completing upgrades is the most effective way to increase commercial property value. Upgrades may include new flooring, painting, fixtures or perhaps a complete rebuild of the building’s structure. Renovating will increase the value of a property and boost rental demand and rental return. Businesses should consider completing smart renovations which appeal to a large cohort of tenants and will deliver a high return on the investment. It’s important to discuss any upgrades with a commercial real estate professional to ensure that the works will increase returns. 2. Improve energy efficiency Improving energy efficiency can save on overhead costs, reduce environmental impacts and attract quality tenants. Switching to energy-efficient lighting, such as LED bulbs, can help reduce energy consumption and costs. Businesses can also install sensors and timers to ensure that lights are turned off when not in use. Other improvements can include insulation, upgrading appliances, solar panels, improving water storage, airtight window sealing and improving material selection. Where possible, renovating buildings to use natural lighting and ventilation, utilising green roofs and walls, and using environmentally friendly materials will significantly improve sustainable practices and energy efficiency. 3. Utilise government depreciation incentives Businesses who own and operate commercial buildings can take advantage of the various incentives introduced by the Australian Government to boost performance. Under the extended Instant Asset Write-Off, businesses with an aggregated turnover of less than $10 million can claim an immediate deduction for new or second-hand assets added to a building costing less than $20,000 on a per-asset basis. Owners can enhance their cash flow by accelerating deductions and seize the opportunity to carry out asset upgrades that might otherwise be unfeasible. 4. Introduce new amenities Introducing new amenities to a commercial property can be an effective way to add value to the property. Installing amenities such as new bathrooms, kitchens, fitness centres, cafés, accessible parking and transportation, an outdoor space and security measures will add value and likely attract high end tenants. 5. Claim depreciation Depreciation is a tax deduction available for the natural wear and tear of an income-producing property and the assets within it. Claiming depreciation allows commercial property owners and tenants to lower potential taxation liabilities while also improving cash flow. Increasing the value of a commercial property requires a multifaceted approach. Businesses can maximise the depreciation deductions they claim by engaging a quantity surveyor to prepare a tax depreciation schedule. Quantity Surveyors, such as BMT Tax Depreciation, are one of the few recognised professionals with the training to identify and accurately calculate construction costs. BMT has streamlined its commercial process to guarantee that both property owners and tenants can claim the highest possible deductions in full compliance with regulations. Additionally, BMT diligently applies relevant government incentives, maximising the benefits available to clients. If you’re considering upgrading a commercial property or don’t yet have a commercial tax depreciation schedule, call BMT on 1300 728 726 or Request a Quote.

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Commercial property tax deductions for owners

BMT team — Sun, 30 Jul 2023 16:30:48 +0000

Navigating the world of commercial property investment isn’t always easy. Investors must consider economic factors like population growth and demand to work out if it’s worthwhile investing in a commercial property. As with residential investment, there are many ongoing expenses involved with owning a commercial property which can sometimes deter investors from making the leap into commercial property investment. It is important to be aware of the deductions available to investors which make holding a property much more affordable. Here are some common commercial property tax deductions available to investors. Contents Maintenance and management costs Depreciation Depreciation: capital works Depreciation: plant and equipment Renovations BMT are the commercial depreciation experts Maintenance and management costs According to legislation governed by the Australian Taxation Office (ATO), commercial property owners can claim deductions for related expenses for the period their properties are rented or available for rent. Owners can claim an immediate deduction for any expenses relating to the maintenance or management of their property. This may include things like interest on loan repayments, leasing agent fees, council rates, air conditioning repairs, water leaks, cracked tiling or replacing smoke alarms. Depreciation Depreciation is a lucrative deduction available to owners of income-producing properties. As a building and its contained assets age, they depreciate in value. ATO-governed legislation allows owners of investment properties to claim a tax deduction for this wear and tear called depreciation. Owners can claim under two different categories, capital works or division 43 and plant and equipment or division 40. Depreciation: capital works Capital works is the deduction for the building’s structure and any permanently fixed assets. It is commonly referred to as building write-off and can be claimed at either 2.5 per cent over forty years or 4 per cent over twenty five years depending on the property’s construction commencement date. For more information, read BMT Tax Depreciation’s tax depreciation overview. Commercial properties qualify for capital works deductions if construction started after the 20th of July 1982. Examples of qualifying capital works assets include roofs, bricks, mortar, wiring, walls, windows, flooring and other permanently fixed assets. Depreciation: plant and equipment Owners can also claim for plant and equipment assets they own or those which are left behind by tenants. Plant and equipment refers to assets that can be easily removed from the property and includes items like rangehoods, ovens, carpets and air conditioning. Plant and equipment depreciation is calculated based on each asset’s individual effective life as determined by the ATO. Effective life and depreciation rates for commercial and residential assets can be found on BMT Tax Depreciation’s Rate Finder tool. Renovations Commercial property owners can claim depreciation for renovations on their properties including those completed by previous owners. This includes things which may not be so obvious, like updated plumbing, water-proofing and wiring. For renovations of a structural nature to qualify for capital works deductions, they must have commenced within the qualifying dates set by the ATO. BMT are the commercial depreciation experts To maximise the depreciation claim for your commercial investment property, it’s important to engage specialist Quantity Surveyors such as BMT for a tax depreciation schedule. BMT is the largest and most successful tax depreciation company in Australia with extensive experience in creating comprehensive, ATO-compliant schedules. BMT has prepared tax depreciation schedules for commercial properties ranging from primary production, manufacturing, retail centres, mining, office towers, medical centres, traveller accommodation and many more. Find our more about BMT Tax Depreciation’s extensive experience with our Commercial Capability Statement. If you’re considering commercial property investment, contact BMT on 1300 728 726. Alternatively, if you need a quote for your existing commercial property, request a quote here.

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How commercial site inspections maximise claims

BMT team — Sun, 09 Jul 2023 17:15:00 +0000

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.

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Reap rewards when investing in commercial real estate

BMT team — Mon, 25 Jul 2022 23:33:12 +0000

NAB’s latest Australian commercial property survey revealed that recovery from the pandemic downturn is slowly entering commercial property market sentiment. It also reported that 57 per cent of developers plan to start new projects in the next six months. If activity like this is sparking your interest in getting started in commercial real estate investing, here is what you need to know. In this article, we will cover: Why and how to get started Tip 1 – define commercial investment strategy Tip 2 – research Tip 3 – finding the property and tenants Tip 4 – claiming depreciation early Why get started? You need to start somewhere but it’s the motivation, strategy and lateral thinking that will make the difference to how successful your investment portfolio will be. Commercial real estate investing is a great way to diversify your portfolio. When done right, it will result in high returns and reliable tenant leases that lasts years or even decades. How to get started in commercial real estate investing Here are our four key steps to getting started in commercial real estate investing. It may not always be a linear process but covering these will ensure you have set yourself up for success when it comes time to invest. 1. Define commercial investment strategy This is where it’s important to ask yourself all the usual questions: Why do you want to invest in commercial property? What type of commercial property – is there a specific or multiple industries you want to invest in? You also need to adopt big-picture thinking and understand your long-term strategy even in the early stages. Many commercial industries are affected by consumer demands, so you need to invest in property that will be able to ride through the ups and downs of the changing economy. Essential services industries are a great example of this – despite the downturn of COVID-19 they still needed to operate, whether it be in a different format. 2. Do the research By research we don’t simply mean looking through sale listings to find the best deal. So many more factors go into the research process when buying commercial property. Look into all data available for the commercial market as a whole and the specific industry you want to invest in. Research what the industries outlook is and if this is favourable to your investment strategy. Government resources such as the Australian Bureau of Statistics can provide information on business count rates, and the annual percentage change in businesses by industry. While real estate research from credible sources such as JLL and CBRE provide many different reports and outlooks on industry-specific markets. External factors also need to be considered. What are the population and employment trends in the area? Is the commercial industry at risk of becoming irrelevant as the economy develops? Then, start assessing how the investment will impact your cash flow, ask yourself if you can afford this for the long term. Assess your financial position and ensure you look at all financing options available. 3. Finding the property and tenants The overarching strategy, your market research and financial position will inform what property you purchase. Once you’ve done this it’s time to look for tenants. You might get lucky and land a commercial property with favourable tenants already occupying it. This is not unusual, as commercial leases often run for a longer term than their residential counterparts. You can read more about buying commercial property with existing tenants here. If the property is vacant at the time of purchase, it’s time to start looking for tenants. A property management agency that specialises in commercial real estate can help you find the best match. It’s important to remember that sometimes this process can take longer than expected due to the nature of commercial tenancies. 4. Get a depreciation schedule early Depreciation is the natural wear and tear of property and assets. All property investors – both residential and commercial – can claim depreciation as a tax deduction each financial year. This deduction will help you pay less tax. Depreciation is deducted from your income each financial year, just like any other tax deduction. But the difference with depreciation is that you don’t need to spend money to claim it. This makes it the perfect helping hand when you are getting started in commercial property investing. BMT Tax Depreciation has helped tens of thousands of commercial investors claim a life-changing amount of depreciation deductions. We apply all relevant legislative requirements to every tax depreciation schedule we prepare to ensure claims are compliant and maximised. This is essential as there are sector-specific taxation rules across commercial industries – assets in one industry may not depreciate in the same way in another. If you’re considering an investment but have not yet purchased it, you can get an over-the-phone free depreciation estimate from BMT. This will show you just how much of a difference depreciation can make. To learn more, contact BMT on 1300 728 726 or Request a Quote.

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Our restaurant depreciation guide to help you claim thousands

BMT team — Mon, 21 Feb 2022 23:45:24 +0000

When it comes to providing customers with a high-quality dining experience, good food and service is only part of the equation. It is equally as important for a restaurant to make a great physical impression on diners; they will pay attention to the general ambience and the overall quality of items such as furniture, artwork and even the cutlery and glassware. For this reason, restauranteurs often outlay hundreds of thousands of dollars to create an impressive restaurant that will leave diners with a good taste in their mouth. Fortunately, many of the fit-out costs can be recouped through depreciation deductions. Depreciation is the wear and tear that occurs to a building and the items within it over time. The Australian Taxation Office allows commercial building owners and tenants to claim the wear and tear of the property’s structure and fixed items (capital works) as well as for the easily removable items within the property (plant and equipment). This means that restauranteurs can claim depreciation deductions for many assets installed during the fit-out of a restaurant. And many are surprised at just how lucrative these deductions are. The following case study shows just some of the restaurant depreciation deductions that can be claimed for common assets. Case study: Hotel A has recently changed hands. Among several other things, its facilities include a fine dining restaurant. The following table shows the plant and equipment deductions from the restaurant that are available to the new owners. The available restaurant depreciation deductions add up to an impressive $51,548 in the first financial year. Given that the hotel is a medium business and settlement took place in 2022, the new owners are entitled to the instant-asset write off. Not only does this make a significant impact on the restaurant’s cash flow, but the efficiencies resulting from the new fit out can reduce the operational costs of the restaurant. To ensure that restaurant depreciation deductions are maximised, contact a specialist quantity surveyor to arrange a comprehensive tax depreciation schedule, which will outline the deductions available for every eligible asset. A BMT Tax Depreciation Schedule applies all industry-specific legislation to ensure commercial depreciation deductions are claimed to their full potential and compliantly. BMT also applies current business incentives including the backing business investment and temporary full expensing depending on the business size, to ensure every cent is claimed. To learn more about the restaurant depreciation deductions available in a restaurant, pub, or café, visit the commercial property depreciation page on the BMT Tax Depreciation website. Disclaimer: The information provided in this article is based on restaurant size, date of acquisition, size of business entity etc. This information is not to be used as a quote or guaranteed tax depreciation amount. Contact BMT for a specialised tax depreciation schedule.

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Property Market Update 2022

BMT team — Fri, 28 Jan 2022 02:16:37 +0000

The pandemic pushed Australians to their limits in 2021, but we remained staunch – as did the housing and property market. Read on for a recap of events in last year’s property market and watch the video to hear the thoughts of our CEO, Bradley Beer. Contents: National property market prices Rental yields Finance and interest rates National property market prices The property market in Australia finished the year with strength. At the end of December 2021, Australian dwelling values were 22.1% higher than in December 2020, coming off a cyclical high of 22.2% in the twelve months to November. Australia’s inflated property market is now valued at more than $9 trillion, a record high after surging home prices through the pandemic lifted the value of residential property by $1 trillion in the past six months alone. Rental yields With national property values recording an annual rise of 22.1% compared with a 9.4% rise in rents, rental yields have decreased as a natural consequence. Gross rental yields fell to a new record low across Australia, reaching 3.2% in December. The lowest yields, by some margin, remain in Sydney (2.4%) and Melbourne (2.7%), however, except for Perth and Darwin, every capital city is recording record low yields. Finance and interest rates Following its December meeting, the RBA kept the Official Cash Rate at the record-low of 0.1 per cent. Concerns about property affordability have risen to the highest-ever level in the latest ANZ/Property Council Survey, with respondents saying soaring prices and increasingly unequal access to home ownership make it the number one issue for governments to address. The powerful Reserve Bank-led Council of Financial Regulators has maintained its watching brief over the hottest property market in over three decades, saying it continues to “closely monitor” the impact of the higher interest rate buffers imposed in November. Hear more from our CEO, Bradley Beer.

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Three facts about investing in commercial warehouses

BMT team — Wed, 12 Jan 2022 05:55:42 +0000

The demand for modern warehouses has grown significantly in recent years. Since warehouses are centres for many forms of logistics activity, warehouse investment is on the rise. It doesn’t look like this growth will slow down any time soon, with CBRE predicting e-commerce will drive requirements for an additional 350,000 SQM of new space each year. Here are three facts to know about investing in commercial warehouses. Fact 1: There are a variety of warehouse investment types Different types of commercial warehouses fit different purposes. Broadly, a warehouse will fall into one of four categories. Production warehouse: This type of warehouse is used to manufacture and produce goods. Typically located within a manufacturing or production site, a production warehouse will hold stocks of raw materials to ensure there is always enough supply to make the manufacturer’s product. Storage warehouse: This warehouse type is often used for long-term storage of inventory or finished goods. Storage warehouses may also be used to store the components needed to create the finished product, so that they are available quickly when required. Fulfilment warehouse: Also known as a distribution centre, this type of facility serves as the link between suppliers and customers. A fulfilment warehouse moves goods along quickly, acting as a centre for order fulfilment, packaging, labelling and transportation. Technology is often used to improve cost and efficiency, and hence customer service. Sorting and consolidation warehouse: Rather than being used for storage, this type of warehouse receives inbound shipments from several suppliers and sorts the items according to their end destination. This type of warehouse might combine smaller shipments into larger, more economical loads intended for the same area. Fact 2: Warehouses may use manual labour or automation Some of the more traditional warehouses use manual handling systems, operating in a non-automated way. In these facilities, operators manually move the goods with equipment such as forklift trucks, conveyors and pallet trucks. Semi-automated warehouses are more high-tech than traditional warehouses, but manual handling still plays an important role. A company might opt for a semi-automated solution if there are safety issues or a high number of manual handling errors impacting profitability. A pallet shuttle system is an example of a semi-automated solution, where an operator places the pallet in the first position of a storage channel using a forklift, then a motor-driven shuttle loads and unloads the pallets. Fully automated warehouses use state-of-the-art mechanised technology to maximise warehouse efficiency. This kind of warehouse uses robotics to assist humans with retrieval, moving, sorting and picking. This machinery helps to save on labour costs and improves both efficiency and operational safety. Due to the additional equipment required for automation there will be more plant & equipment depreciating faster than the building, and therefore higher deductions may be available. Fact 3: Warehouse investment yields lots of tax deductions BMT wants to remind both industrial space investors and the businesses that operate from them to ensure they are claiming every tax deduction they are entitled to. Depreciation is the natural wear and tear of the commercial warehouse and its fit-out, which can be claimed to reduce taxable income. The sheer size of the structure of a warehouse generally means that there are ample capital works deductions available. Depending on the warehouse type, the capital works deduction fixed rate can change. For example, currently manufacturing industries (including warehouses used for manufacturing) capital works deductions are calculated at a fixed rate of 4 per cent. Storage and distribution warehouses capital works deductions are depreciated at a rate of 2.5 per cent. The other side of commercial warehouse depreciation is the fit-out. This is usually owned and claimed by the party that is using the warehouse as their business operations. These assets depreciate at a rate based on their effective life as set by the Australian Taxation Office. A business that owns a new warehouse with a fit-out including shelving, machinery like forklifts, picking/packing equipment and office furniture could reasonably expect to claim a first full year depreciation deduction of $140,000 and $2,700,000 in total (this does not consider business incentives such as temporary full expensing and backing business incentive). Tax depreciation schedules are the key to claiming the maximum depreciation deductions when investing in commercial warehouses. A BMT Tax Depreciation Schedule applies all industry specific legislation to ensure commercial depreciation deductions are claimed to their full potential and compliantly. BMT Tax Depreciation has optimised its commercial process to ensure both owners and tenants claim the most deductions possible. To learn more about commercial warehouse depreciation, call BMT today on 1300 268 628.

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What happens when a business owner’s SMSF owns their premises?

BMT team — Tue, 19 Oct 2021 23:20:38 +0000

A strategy some business owners use to improve business while investing in their own future is to rent their business premises from their self-managed super fund (SMSF). The superannuation industry is highly regulated, so how does this work with all the red-tape? And how does the business owner and SMSF claim tax deductions for this scenario, including depreciation? What is an SMSF? An SMSF is a type of private super fund that can hold up to six members. It has the same purpose as any other super fund – to set the members up for retirement. This type of super fund differs from traditional retail or industry funds as the members are often also trustees. This means members have many responsibilities to ensure their fund is managed in compliance with strict superannuation laws. One of the same; SMSF member and business owner A business owner can be an SMSF member while running their own business separately to the fund. However, this is on the condition that any dealings between the SMSF and the business are done on an arm’s length basis. This means the business and SMSF can’t exploit the system by purchasing and selling assets to each other at a rate that is well below market value. The purchase or sale of a fund asset (e.g. property, shares) must always reflect the true market value of the asset. Any income that is earned as a result of a non-arm’s length transaction on the SMSF’s behalf will face a higher tax rate on the income source. A business owner can use a commercial property that is owned by their SMSF as their business’s premises. The SMSF can even purchase the property from the business and rent it back out to them to improve the business’s capital position – as long as it is done through an arm’s length transaction. Case study – business operating from an SMSF propertyAnthony is a chef and runs his own restaurant. He is also a member of an SMSF.The property he operates his restaurant from is owned by the SMSF he is a member of. He moved his business to this property following its acquisition by the SMSF. Therefore, Anthony rents this property at market rates from his SMSF, giving him security over the lease term for the business while benefiting his future through his SMSF owning the property as it receives a steady income. How does depreciation work in this scenario? Depreciation is the natural process of wear and tear, it happens to most assets including property, vehicles and furniture. An SMSF can claim this depreciation on any eligible property it owns under the fund, while business owners can take advantage of depreciation of the assets they use for business purposes. In this scenario, depreciation is still split into two parts as per the case study below: Case study – continuedAnthony will be able to claim only the fit-out he owns in the property against his business’s taxable income. This includes assets like restaurant furnishings, kitchen equipment and point of sale systems.Meanwhile, the depreciation available on the on the structure of the property and fixed assets owned by the owner (in this case, the SMSF) must be claimed separately and under the SMSF’s tax assessment. This means depreciation deductions will be against the concessional SMSF tax environment of 15 per cent. Businesses and SMSFs must ensure depreciation claims remain compliant Depreciation can shave thousands off a tax bill every year, so these claims are often, and understandably, looked at in detail by the Australian Taxation Office (ATO). Businesses and SMSFs alike can ensure they maintain full compliance and avoid ATO scrutiny with a tax depreciation schedule. This schedule is a document that lasts the lifetime of a property. It outlines all depreciation deductions that are available each financial year and is used by an accountant at tax time. BMT Tax Depreciation specialises in these schedules for all types of property, both residential and commercial, and whether they are owned by individuals or entities. SMSF members and businesses are encouraged to discuss their depreciation option with BMT on 1300 728 726 or the team can contact them once they Request a Quote.

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What you need to know when buying a commercial property with existing tenants

BMT team — Thu, 11 Feb 2021 03:47:05 +0000

With long leases, the opportunity for high returns and lucrative tax deductions on offer, commercial properties can be a sound investment choice. Each property is unique, as will be any pre-existing leasing situation you enter once you purchase the property. So what do you need to know about buying a commercial property with existing tenants? In this article, we will cover: What to ask yourself when making the decision to buy What to consider when buying a commercial property with existing tenants What happens and how does it work? Claiming depreciation with or without existing tenants Making the decision to buy a commercial property Before we get into the details of what happens if the commercial property you buy has pre-existing tenants, there are several key questions to ask yourself. 1. Is it the right choice for your investment strategy? Your investment strategy fundamentally underpins your choice. Commercial properties are unique, subject to different legislative requirements and standards compared to residential, while attracting a niche tenant market. Commercial properties generally provide a higher rental yield compared to residential, but this comes with a risk as looking for a niche tenant can cause the property to sit vacant for a period of time. If this is what you’re looking for, commercial investment could be a good move. 2. Is this a viable industry to enter? Supply and demand aren’t the only factors to consider when purchasing a commercial property. The type of industry the property can be used for also feeds into the equation for example farming, manufacturing, hospitality and traveller accommodation. The industry plays an important role in determining the type of rental rate you can expect and the feasibility of attracting tenants. 3. What’s your budget? Depending on industry, property type and location, commercial investments can create a substantial initial financial outlay. While the long-term returns and consistent rental income can help with ongoing costs, ensuring the property is within your budget to begin with is crucial. It is worth talking to a financial institution early. There are often additional requirements for commercial finance and reduced allowable LVR’s (loan value ratio) which means a higher deposit is often required compared to residential loans. What to consider when buying a commercial property with existing tenants The first step is to understand what you need the commercial property for. If you’re simply wanting to lease it to tenants at the market rate, then having existing tenants can be beneficial, it means you’re making a return straight away and a long lease is a positive. However, there are situations where having an existing tenant isn’t ideal. For example, if you’re wanting to occupy the property yourself to operate your own business. Or if the current tenant is on a prehistoric lease where the rental rate isn’t competitive in the current market. This is where buying a commercial property with an existing tenant can be less than ideal. Essentially, purchasing a commercial property doesn’t allow you to dishonour a pre-existing, fixed lease. The best option here is to seek legal advice prior to entering the contract of sale to understand the lease’s terms and any other contractual agreements. Understanding the fine print in the leasing contract is crucial as this will determine what you can and can’t do with the property once you own it. The story changes if the tenant is on a periodic arrangement. This can provide more flexibility, allow you to make adjustments or end the leasing agreement following the set notice period. It’s important to note that this doesn’t simply mean you can do as you wish and it’s just as important to seek professional legal advice. What happens if the tenant leaves and doesn’t remove fit-out? In some instances, the tenant isn’t required to remove their fit-out at the end of their lease. If this happens to you, it can work in your favour. Section 40-40 of Subdivision 40-B of the Income Tax Assessment Act 1997 indicates that if there is value in the assets left behind, the new owner of the property (you) becomes the owner of the assets. Claiming maximum depreciation when buying a commercial property Even if the previous owner had a tax depreciation schedule, it’s crucial to get your own. This is especially true if you need to do some work to the property as a process called scrapping allows you to instantly claim the un-deducted value of removed assets. Several further factors also affect how much an individual investor can claim in depreciation including the settlement date, the industry the commercial property operates in under the new ownership and much more. BMT Tax Depreciation can provide an obligation-free depreciation estimate in the early stages of buying a commercial property with existing tenants. This can help with your decision-making process and give you a better idea of the type of cash flow you can expect. To find out more about BMT’s commercial schedules and their other commercial services, call the team on 1300 728 726 or Request a Quote.

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