» commercial tenant

What is leasehold improvements depreciation? Your questions, answered

BMT team — Tue, 14 Dec 2021 05:26:02 +0000

Leasehold improvements are an important part of any business operation. But how can business owners maximise the cash return from them? The simple answer is through leasehold improvements depreciation. What are leasehold improvements? Leasehold improvements are the improvements made by a lessee, or tenant, to customise a rental property. This is common in the commercial landscape as a tenant often needs to make changes to the property to best match its business operations. Tenants can claim depreciation on their leasehold improvements over the given asset’s depreciable lifetime. Some common examples of leasehold improvements include updating cabinetry and storage, changing flooring or adding new walls within a building. What aren’t leasehold improvements? Repairs and maintenance are not classed as leasehold improvements. For example, if a business tenant patched a crack in a wall or had their kitchen appliances serviced, they wouldn’t be classed as improvements. Expenses related to repair and maintenance can be claimed as an immediate tax deduction in the same financial year. All the owner needs to do is keep record of the expense and their accountant will factor it into their lodgement come tax time. What is depreciation? Depreciation is the natural wear and tear of property and assets over time. Business owners and commercial investors alike can claim depreciation as a tax deduction each financial year. The best thing about depreciation is that unlike other tax deductions, no additional money needs to be spent to claim it. This is because depreciation is a natural process that can be claimed once the asset starts being used to produce income. Why is it important to claim leasehold improvements depreciation? Failing to claim depreciation on leasehold improvements essentially means throwing money down the drain. The depreciation claimed can make a big impact to the amount of tax the business can claim. Sometimes, this depreciation can reach the tens of thousands of dollars in a single year, resulting in a tax refund rather than a substantial tax bill. How to claim leasehold improvements depreciation? A tax depreciation schedule is necessary to claiming maximum depreciation on any leasehold improvements. This schedule will outline the depreciation of all assets owned by the business, not just the areas where improvements have been made. If the business already has a depreciation schedule, they can simply request an update to the current schedule once an improvement is made. BMT offers this service to all their existing clients at a small fee. What happens if the lessee removes their current fit-out to make leasehold improvements? Commercial leases can span for several years, so it’s only natural for the business to make improvements over time. The good news is that any undeducted depreciable value on removed assets can be claimed as an instant deduction. This is possible through a process called scrapping but it’s essential to have a tax depreciation schedule prepared prior to the removal to claim the scrapped value with full compliance. BMT Tax Depreciation has been specialising in commercial and residential depreciation for over twenty years. The team applies industry-specific legislation to ensure all commercial owners and business claim depreciation to its full potential, while maintaining full Australian Taxation Office compliance. Businesses that are planning on making leasehold improvements can call BMT today on 1300 728 726 or Request a Quote for an obligation-free depreciation estimate of the changes.

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New principles for commercial tenancies to help business sustainability during the COVID-19 pandemic

BMT team — Tue, 28 Apr 2020 23:39:17 +0000

Amid the COVID-19 pandemic, our government has announced a number of stimulus packages and measures to help our community get through this unprecedented time. A mandatory code of conduct (the code) has been announced and makes up part of the hibernation strategy for our economy. It introduces several principles to commercial tenancies that are underpinned by good faith negotiations. If you’re a commercial tenant or landlord, here is what you need to know. Contents: Who is eligible? What are the leasing principles? Principle highlight: Rental reductions Tenant responsibilities Landlord responsibilities How will this work? Who is eligible? The principles outlined in the code are applicable for commercial landlord and tenant agreements, where the tenant is a business with an annual turnover of up to $50 million and is eligible for the JobKeeper program. What are the leasing principles? The principles under the code are not focused on outweighing benefits or making one party more disadvantaged than the other. It has been created to help share the burden and provide realistic options to sustain our businesses and ensure many are able to continue their current tenancies. While emphasis is on tailoring arrangements to suit individual circumstances, the leasing principles provide a form of ground-rules for the discussions between commercial tenants and landlords. Principle highlight: Rental reductions Many commercial tenants are under immense financial distress due to the COVID-19 pandemic. Under the code, those eligible will receive rental reductions. This is how it will work: Landlords must offer proportionate rent reductions through waivers and deferrals, of up to 100 per cent of the ordinary rent payable Waivers must create no less than 50 per cent of the total reduction during the COVID-19 pandemic period Rental deferrals by the tenant must be paid over the balance of the lease term of no less than 24 months. Tenant responsibilities Tenants are equally responsible as landlords to exercise good faith in any negotiations. For any tenant to remain protected under the code, they must remain committed to the terms of their lease, subject to any amendments. Any material failures to do so will result in the tenant losing any protections provided under the code. Landlord responsibilities The principles are designed to facilitate the good faith negotiations between landlords and their tenants and leverage any additional benefits that the landlord may obtain, such as deferrals of their own expenses. Here are the key principles that a landlord must follow as part of the code: A landlord must not terminate leases due to non-payment of rent during the affected COVID-19 period Any reductions in statutory charges or insurance are to be passed on to the tenant through appropriate portions Landlords should seek to share any benefit of their own deferrals of loan repayments, provided by the Australian Bankers Association’s COVID-19 response Where appropriate, landlords should seek to waive recovery of any other expense by the tenant, during the period the tenant isn’t able to trade Landlords mustn’t draw on a tenant’s security for the non-payment of rent during the affected COVID-19 period Landlords must agree to freeze rent increases during the affected COVID-19 period. How will this work? The code will be implemented by state and territory governments via appropriate legislation and regulation. Where a tenant and landlord cannot reach an agreement on leasing arrangements as a direct result of the COVID-19 pandemic, the matter would be referred to applicable resolution processes for binding mediation. It’s important to note that good faith negotiations between commercial landlords and tenants is key for this to work. By coming to realistic and sustainable agreements, both parties will help each other reach the other side of this pandemic.

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Landlords can save almost $70 per week this Christmas

BMT team — Tue, 10 Dec 2019 21:31:01 +0000

While retail tenants are hoping strong spending in the lead-up to Christmas will boost the coffers after months of tough trading, landlords are looking to depreciation for their holiday bonus. Retail profits generally peak during the holiday season, however it’s common for business owners and landlords to have significant outlays during this period too. With this in mind, it’s important to be aware of the depreciation benefits of owning a commercial property – it could save you almost $70 a week. What is depreciation? Depreciation deductions can be claimed for the wear and tear of a building structure via a capital works deduction and for the plant and equipment assets within the property. The Australian Taxation Office (ATO) allows owners of any commercial property in which construction commenced after 20th July 1982 to claim capital works deductions. If your property was built before this date, there may still be plant and equipment deductions available so it’s important to consult with an expert. Plant and equipment depreciation is calculated based on the individual effective life of each item as well as their condition and quality. Immediate write-off and pooling rules may also apply if an asset is below a certain value. This is particularly the case for small and medium sized business owners and tenants, who are also eligible to claim significant depreciation deductions. Often tenants can claim on any fit-out they install from the starting date of their lease. Depending on lease conditions, a tenant may be required to remove these assets prior to vacating. In this instance, scrapping can be applied in which the tenant can claim any remaining depreciable value. Assets left behind by a previous tenant may also be available to be claimed by the landlord. Given both parties can simultaneously claim deductions, it’s important to contact a specialist Quantity Surveyor to arrange a tax depreciation schedule. Case study: Retail property purchased for $620,000 Let’s look at an example of how a business saved thousands by ordering a tax depreciation schedule. A large business acquired a retail property purchased for $620,000 The property generates an annual income of $52,673 The expenses total $38,021 The following scenario shows the business’s cash flow with and without depreciation. After ordering a tax depreciation schedule, the business was entitled to $12,000 in depreciation deductions in the first financial year. By claiming property depreciation, the business’s weekly cash flow increased from $197 to $266, improving the after-tax position by an additional $69 per week. A BMT Tax Depreciation Schedule lasts forty years, considers industry-specific legislation, provides a range of depreciation methods and includes a property inspection. The schedule is 100 per cent tax deductible. Maximise the cash return from your commercial property or business and Request a Quote today. Continue reading: Tax break continues to help small business owners What’s happening in the commercial property market Is co-working the future of the workplace?

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What can I claim as a commercial tenant?

BMT team — Mon, 18 Feb 2019 05:33:31 +0000

Commercial property attracts substantial tax deductions. We recently looked at the depreciation deductions available to commercial property owners, but what can you claim as a tenant in a commercial property? In a commercial property, tax deductions are available for the wear and tear that occurs to a building’s structure and contained assets. The claim is broken down into two categories, capital works and plant and equipment. Capital works refers to the deduction for the building’s structure and any permanently fixed assets and includes things such as roofs, bricks, mortar, windows and wiring. Plant and equipment refers to any assets deemed by the Australian Taxation Office (ATO) as easily removable from the property or those that are mechanical in nature. This includes items such as carpets, air conditioning, ovens or lights. In this article we will look at: Who can claim what? Why claim depreciation? Who can claim what? While owners can claim depreciation for the building’s structure and any assets they own within the property, tenants are entitled to claim deductions for assets they purchase and install during a fit-out. Some common assets tenants can claim include flooring, desks, blinds or shelving. There is also a broad range of industry-specific assets. To search the full list of assets, visit BMT Rate Finder. If lease conditions state a tenant’s property must be returned to its original condition when their lease expires, tenants may have to remove and dispose of assets which have remaining depreciable value. In these circumstances, tenants can write-off these assets as an immediate tax deduction in the year the assets are removed. It is important to contact a specialist Quantity Surveyor to ensure every possible dollar is captured and no depreciable value goes unclaimed. Why claim depreciation? For business owners leasing their premises, claiming tax depreciation can make a significant difference to cash flow, meaning more flexibility when it comes to purchasing stock or undertaking any much-needed renovations. Commercial tenants should contact professional Quantity Surveyors to obtain an ATO compliant tax depreciation schedule to maximise their claim. BMT Tax Depreciation are the commercial property specialists, with expertise across various industries including primary production, mining, manufacturing, office towers, shopping centres and more. For more information on commercial property depreciation, read our Commercial Capability Statement or contact the expert team at BMT Tax Depreciation on 1300 728 726.

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