» small business depreciation

Loss carry back tax offset and depreciation

BMT team — Tue, 27 Sep 2022 00:33:33 +0000

In 2020 the Australian Government developed an Economic Recovery Plan as a response to the effects of COVID-19. The plan was developed to boost economic growth, create jobs, invest in future industries and skills, remove red tape, guarantee essential services and restore confidence in a stronger recovery. An element of the Government’s Economic Recovery Plan for Australia included the JobMaker plan, and part of this plan meant a temporary loss carry back tax offset measure was introduced. The loss carry back incentive allows eligible businesses to apply tax losses against profits in a previous financial year. Initially the loss carry back incentive was supposed to end in FY 21/22 but has been extended, so eligible corporate entities will be allowed to carry back losses as far as the 2018-19 financial year when they lodge their FY 2022-23 tax return. Loss carry back tax offset explained The loss carry back tax offset allows businesses with an aggregated turnover of less than $5 billion to apply tax losses against profits in a previous financial year. Due to the $5 billion turnover threshold most Australian businesses are eligible to apply this offset. This initiative allows eligible businesses to carry back tax losses from FY 2019-20, FY 2020-21, FY 2021-22, FY 2022-23 income years to offset previously taxed profits in FY 2018-19 or later income years. For instance, under the previous ruling if ‘Business A’ made a loss in FY 2020-2021 and didn’t return a profit until FY2022-23, Business A would have had to wait two years to claim back the losses. However, under this new measure Business A can use its FY 2020-2021 loss to amend its tax returns going back to FY 2018-2019, resulting in an immediate reimbursement of tax previously paid. To be eligible for the loss carry back tax offset: 1. the amount carried back doesn’t exceed the earlier taxed profits 2. and that the carry back doesn’t generate a franking account deficit. Thousands of Australian businesses have been impacted by the pandemic and are now recovering, the loss carry back incentive presents these businesses with a unique opportunity to continue recovery without detrimental effect to cash flow. Loss carry back tax offset example The table below demonstrates how ‘Business A’ was able to receive an immediate reimbursement once the loss carry back tax offset was applied. Claim depreciation to maximise loss carry back tax offset Businesses can take greater advantage of the loss carry back tax offset with a tax depreciation schedule. A tax depreciation schedule allows businesses to maximise depreciation deductions while maintaining full compliance with current Australian Taxation Office (ATO) legislation. Depreciation is the natural wear and tear of a property and the assets within it over time. The ATO allows owners of income-producing properties to claim this as a tax deduction. Business A ordered a tax depreciation schedule and claimed the maximised deductions, because they also applied loss carry back tax offset, they were able to offset their historical taxable profit against FY 20/21 when they had a loss and as a result reduced their tax liability further. The loss carry back incentive was intended to interact with temporary full expensing, encouraging new investment which may result in tax losses. Where the choice to carry back tax losses results in a tax refund, this will increase business cash flow. Regardless of if the business owns the building or are tenants, they can benefit from the lucrative depreciation deductions available. Fees for depreciation schedules are 100 per cent tax deductible. BMT Tax Depreciation take all current business incentives into account and apply them to qualifying assets when applicable. Claiming depreciation allows businesses to improve their cash flow and make the most out of loss carry back. To find out how your business can benefit from maximising loss carry back with a tax depreciation schedule call BMT on 1300 728 726 or Request a Quote.

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Understanding the general small business pool

BMT team — Mon, 06 Jul 2020 00:18:47 +0000

A specialist quantity surveyor, such as BMT Tax Depreciation, ensures all small business owners maximise their cash flow with depreciation deductions. With a number of incentives currently on offer like the instant asset write-off threshold increase, Backing Business Investment (BBI) incentive and general small business pool, piecing together who is eligible for what can be confusing. The general small business pool is an incentive in place that allows many business owners to accelerate depreciation deductions for several years. In this article we will explore: What is the general small business pool and which businesses are eligible? Deducting the general small business pool total balance General small business pool and the Backing Business Investment incentive Apportioned assets and the general small business pool BMT Tax Depreciation are the commercial specialists Key points: A small business is a business with an aggregated turnover of less than $10 million Generally, assets in the general small business pool depreciate at a rate of 15 per cent in the first year, and 30 per cent each year following The BBI incentive accelerates depreciation even further What is the general small business pool and which businesses are eligible? The general small business pool allows business owners to claim depreciation on plant and equipment items at an accelerated rate. The pool is simplified to allow them to claim back more sooner. A small business with an aggregated turnover of less than $10 million can place qualifying assets that cost equal to or above the current instant asset write-off threshold into a general small business pool. This allows the small business to claim depreciation on qualifying assets at a rate of 15 per cent in the first year, and 30 per cent each following year. Deducting the general small business pool total balance A small business can deduct the entire balance of the pool if the closing value, before applying the depreciation deductions, is less than the current instant asset write-off threshold. Let’s see how this works in practice. In practice: General small business pool total deduction Kate owns a restaurant and has earned a total aggregated turnover of $5 million. She has a number of assets allocated to her general small business pool including beer dispensing systems, bar refrigerators, freestanding restaurant furniture, kitchen exhaust fans and carpets.At the end of the 2019-20 financial year, the total balance of Kate’s general small business pool, before applying the depreciation deductions, came to $65,000. Given that the current instant asset write-off threshold for the financial year was $150,000, Kate can deduct the entire balance of the pool. General small business pool and the Backing Business Investment incentive The Backing Business Investment (BBI) Incentive is currently in place until 30 June 2021. The incentive allows many businesses to accelerate depreciation deductions even further for new plant and equipment assets. The BBI incentive allows small businesses using the simplified depreciation rules to claim 57.5 per cent of the asset’s cost in the first year and then add it to the general small business pool in following years. In practice: BBI incentive and the general small business pool Jim owns a construction business that was founded in 2017. Since opening, his business has earned a total aggregated turnover of $6 million.In May 2020 Jim purchased a brand-new hydraulic excavator for his business use. The total cost of the excavator came to $155,000. At the time of acquisition, the instant asset write-off threshold was $150,000. Therefore, Jim couldn’t instantly write-off the new excavator and was instead eligible for the BBI incentive.Under the BBI incentive, Jim was able to deduct 57.5 per cent of the excavator for the 2019-2020 financial year, leading to a deduction of $89,125. For following years, the excavator will be placed in general small business pool and depreciated at a rate of 30 per cent. Apportioned assets and the general small business pool Some businesses may use assets for both personal and business use, for example a vehicle. In these instances, determining whether the instant asset write-off or general small business pool applies depends on the portion the asset is used for business purposes and private use. If the value of the business-use portion of the asset doesn’t fall within the relevant thresholds, it can’t be claimed as a write-off or placed in the pool. BMT Tax Depreciation are the commercial specialists For over 20 years, BMT Tax Depreciation have been trusted by business owners across all industries. BMT ensure that every instant write-off, general small business pool and depreciation rule is applied in their comprehensive schedules. This ensures all claims are maximised and Australian Taxation Office compliance is maintained. To learn more about claiming depreciation for your small business, Request a Quote or contact BMT on 1300 728 726.

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Can I claim depreciation when operating a home-based business?

BMT team — Mon, 23 Sep 2019 00:17:12 +0000

When operating a home-based business, many owners are not aware of the lucrative depreciation deductions available. If you’re one of them, you may be missing out on thousands of dollars. With improvements in technology and the convenience and flexibility that working from home provides, according to business.gov.au ‘nearly one million people [are] running a business from home [with] home-based businesses [now] a large part of the Australian business community’. In this article we will explore: What expenses can I claim when working from home? What are the rules? What type of insurance do I need? What expenses can I claim when working from home? Substantial tax depreciation deductions are available to home-based business operators. The ATO allows owners of income-producing properties to claim depreciation deductions on both the structure of a building (capital works) and easily removable assets (plant and equipment). When operating a home business, the same rules apply to the area of the home and the assets within it that are used solely for income-producing activities. Home based business operators can claim an apportioned tax deduction for use of home office utilities and business phone costs (not including phone installation). In some cases, you can also claim occupancy expenses including rent, mortgage interest, insurance and rates, but it’s best to consult your accountant to confirm if your specific business qualifies. If you own your home, you can also depreciate a portion of the cost of your house that’s used to run the home-based business. Additionally, owners can deduct the cost of any repairs made directly to the office area. Let’s look at a case study showing some of the available deductions and the significant difference claiming these deductions can have on a home-based business operator’s cash flow. In the example above, the original value at purchase is shown for each item. Using the diminishing value method, BMT calculates the first-year deductions available would be $3,405 in total plant and equipment depreciation. Over five-years, depreciation deductions amount to $7,983. Total capital works depreciation over the first year is $171 and over five years totals $854. The owner of this small business home office can claim a total of $3,576 in tax depreciation deductions during the first year and $8,837 over a five-year timeframe, improving the cash flow of the business. What are the rules? For a home office to be eligible for tax depreciation deductions, there are three main rules stipulated by the Australian Tax Office (ATO) that must be complied with. You must operate your business from your home You must carry out income-producing work from home Expenses incurred must be in direct relation to using your home to operate your business. Small businesses with turnover up to $10 million (from 1 July 2016) are eligible for an instant asset write-off of $30,000 for assets purchased from 2 April 2019 to 30 June 2020. Different instant asset write-off thresholds apply for purchases made before then. In the example above, if the home business is a small business, all assets shown would be eligible for the instant asset write off. Assets with a value above $30,000 can still be deducted over time using the small business pool. These assets can be claimed at a rate of 15% in the first year they were purchased and used or installed, then at 30% each year following. Once the asset value falls below $30,000, they can be instantly written off. Capital gains tax (CGT) is the amount paid to the government when you sell an asset that has increased in value over time since you purchased it. Generally, a home is exempt from CGT, unless part of the home is income producing and you acquired your home on or after 20th September 1985 (when the tax on capital gains began). According to the ATO, in most cases ‘you can ignore a capital gain or loss you make when you sell your home or main residence (under the main residence exemption).’ If you started using your home as your primary business location after 20 August 1996, you cannot claim ‘capital gains and the main residence exemption’ for the time prior to this date. You would then need to use the market value of your home from the date you started using it to produce income. For this reason, it’s recommended you obtain a valuation on your home when you start operating a home business. Otherwise, you may find when you sell the property, you’re required to pay more in capital gains tax. With your home-based business, you may also be eligible to apply for small business CGT concessions to reduce your capital gain. What type of insurance do I need? Operating a business from home can bring certain financial risk. Manage the risk with an appropriate level of insurance, as home and contents insurance is likely to only cover residential use, rather than activities relating to your business operations. Depending on the type of business you’re operating, it’s wise to look at business-specific insurance. If you don’t already have insurance or you’re unsure if your insurance is adequate, contact BMT Insurance. Operating a home-based business can be both exciting and daunting. The independence, lifestyle, flexibility and tax deductions can make it all worthwhile. To find out more about how depreciation deductions can help your home based business, Request a Quote or contact the expert team at BMT Tax Depreciation on 1300 728 726.

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Instant asset write-off increased to $30,000 until 30 June 2020

BMT team — Tue, 07 May 2019 04:05:02 +0000

UPDATE – The Australian Government has announced a $17.6 billion economic plan in response to the challenges posed by the coronavirus, including increasing the instant asset write-off threshold. Click here for more information. In good news for small and medium business owners, the federal government wasted no time in passing changes to the instant asset write-off scheme outlined in the 2019 Federal Budget. The instant asset write-off threshold was increased from $25,000 to $30,000 and eligibility extended to businesses with annual revenues of less than $50 million. This allows these business owners to immediately write off depreciable assets that cost their business less than $30,000. Business owners can therefore claim a deduction for an asset in the same income year as the asset was purchased. In a tighter economic climate, these amendments provide small to medium business owners with the opportunity to invest in new essential items whilst minimising the impact on their cash flow. However, the rules are much more complicated and it’s important for business owners to understand how these changes will affect them and why they should seek guidance from a Quantity Surveyor and an Accountant before lodging their annual income tax return this year. In this article we will look at: What is an eligible asset? What do the changes mean for business owners and their Accountants? What happens when the new instant asset write-off rules end? BMT Tax Depreciation are experts in small and medium business depreciation What is an eligible asset? Small and medium business owners can use the instant asset write-off for any depreciable plant and equipment asset or fit-out installed in their business. The pool of eligible deductible items is broad and ranges from office furniture, blinds, workstations and light fittings to more specific industry assets such as commercial ovens in restaurants, bedding and furniture in hotels, barber chairs and cutting and styling workstations in hair dressing salons and medical or manufacturing equipment. However, the instant asset write-off applies only to certain depreciable assets. There are some assets that don’t qualify such as capital works (building construction costs) and assets leased to another party on a depreciating asset lease. What do the changes mean for business owners and their Accountants? As there have been a number of changes to the instant asset write-off rules in recent years, the amendments mean there will be three threshold tiers for businesses and their Accountants to consider for the 2018/2019 financial year: The first tier applies to depreciable assets valued less than $20,000 acquired before the 29th of January 2019 The second tier applies to depreciable assets valued less than $25,000 first used or installed between the 29th of January 2019 and the 2nd of April 2019 The third tier applies to depreciable assets valued less than $30,000 first used and installed after the 2nd of April 2019 Budget announcement and before 1 July 2020 The first two tiers will apply only to businesses with an aggregated annual turnover of less than $10 million, while the third tier is available to small to medium businesses with an aggregated annual turnover of less than $50 million. The rules revolve around the aggregated annual turnover of the business, which may change from year to year, potentially impacting the deductions they are eligible for in future years. Businesses should always seek guidance from their Accountant when determining the correct thresholds to apply. Assets that don’t qualify for the instant write-off can be depreciated using their effective life or, where eligible, by allocating to an accelerated low-value pool. The decline in value of a depreciating asset is generally calculated using its effective life as set by the Commissioner of Taxation outlined in Tax Ruling (TR2018/4), which is determined by how long it can be used to produce income. This considers: Whether it’s subject to wear and tear at a reasonable rate Whether it’s maintained in reasonably good order and condition The period within which it is likely to be scrapped, sold for no more than scrap value or abandoned The effective life is used to work out the asset’s decline in value (or depreciation) for which an income tax deduction can be claimed. Small businesses can add assets with a cost equal to or more than the instant asset write-off threshold and receive a 15 per cent deduction in the year of purchase and installation ready for use and a 30 per cent deduction from the second year onwards. At the end of an income year where the balance of the pool at the time, before applying depreciation deductions, has a total depreciable value of less than the applicable threshold, the remaining un-deducted value of the pool can be claimed in full. What happens when the new instant asset write-off rules end? From the 1 July 2020, the threshold will revert back to $1,000 for small business entities only. Medium sized business will need to work out their asset’s decline in value under the ordinary depreciation provisions after 30 June 2020. BMT Tax Depreciation are experts in small and medium business depreciation Given the complexities around the instant asset write-off, it’s more important than ever to work with a specialist Quantity Surveyor like BMT Tax Depreciation to ensure all asset deductions are identified and claimed correctly under this new ruling. Whether you’re purchasing a business which owns buildings and/or plant and equipment assets or you’re planning to purchase new plant assets and write-off existing ones, BMT can create a new depreciation schedule or update an existing one to ensure deductions are calculated correctly. Request a Quote today for a free estimate of your likely deductions or contact one of our expert staff on 1300 728 726.

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B&Bs provide significant deductions for owners

BMT team — Fri, 19 Jan 2018 05:09:14 +0000

While Bed and Breakfasts (B&Bs) have long been a popular choice of accommodation for weekend trippers and travellers, their popularity has been given a boost of late, largely thanks to a rise in number of international travellers to Australia. Recent figures from the Australian Bureau of Statistics show a total of 663,500 visitor arrivals during September 2017, an increase of 2.6 per cent when compared to the same month the previous year. During this period, international visitors spent a record $41.2 billion, providing a significant boost to the Australian tourism economy. B&B owners may be seeing a rise in guest numbers due to this increase in visitor arrivals. As such, owners may be looking to purchase new assets to increase the capacity of their accommodation or to counteract any wear and tear. These new assets could include beds, bed spreads, bar refrigerators and small cooking utensils such as kettles, toasters, pots and pans. Often these new items can become a costly business expense. The Australian Taxation Office (ATO) allows commercial property owners and their tenants to claim depreciation deductions related to the wear and tear of a building and any plant and equipment assets contained within. This means B&B owners would be able to recoup some of the cost of these new assets by claiming depreciation for them. In addition, they would be able to claim depreciation for existing plant and equipment assets as well as capital works deductions for the building’s structure. Below is an example of the deductions available to B&B owners. As this example shows, the depreciation deductions for this type of property can be quite substantial and should not be overlooked. In the first full financial year alone, the owner of this B&B could claim $25,816 in depreciation deductions. Over the life of the property, the owner was able to claim $374,462. BMT Tax Depreciation specialise in maximising depreciation deductions to ensure investors put more money back in their pockets. By obtaining a BMT Tax Depreciation Schedule, property investors – including B&B owners – can rest assured that all available depreciation deductions are found and can be claimed in their tax return each year. The fee for a schedule is 100 per cent tax deductible. To learn more about claiming depreciation for any commercial property, visit our commercial property depreciation page.

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Help your garden centre business blossom

BMT team — Thu, 14 Dec 2017 00:28:30 +0000

Nursery and garden centre owners may be seeing a growing demand for a more diverse range of plants and gardening supplies. A recent campaign from Nursery and Garden Industry Australia suggests Australians are looking to improve their health and wellbeing by placing plants in their homes while also becoming more interactive with new technology. As such, owners of nurseries could be looking to purchase new assets that will cater to this additional stock and improve how their plants and garden supplies are displayed. However, acquiring these new items can often be a costly business expense. The good news is that these costs can be minimised if the business owner claims depreciation. The Australian Taxation Office (ATO) allows commercial property owners and their tenants to claim depreciation deductions related to the wear and tear of a building and any plant and equipment assets contained within. Garden centre owners and tenants can claim depreciation for a number of assets commonly found on such premises including shelving, watering systems, computer equipment, work benches, trolleys and ladders, as well as more standard commercial assets such as sinks, windows, bricks and mortar. The table below showcases the depreciation available for a nursery purchased for $950,000. As you can see the nursery owner was able to claim $38,003 in deductions in the first full financial year and $383,934 in deductions over the life of the property. These deductions are quite significant and should not be overlooked, given the difference they can make to a business owner’s cash flow. When it comes to commercial properties, both owners and tenants are able to claim depreciation. Owners are entitled to claim deductions relating to the building structure and any fixed assets and plant and equipment they own, while tenants can claim on any fit out they install after commencing their lease. The fee for preparing a tax depreciation schedule is 100 per cent tax deductible To learn more about claiming depreciation for any commercial property, visit our commercial property depreciation page.

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Claiming depreciation essential to the health of medical centres

BMT team — Thu, 23 Nov 2017 03:15:12 +0000

Many medical centre owners are unaware that the Australian Taxation Office allows them to claim depreciation deductions based on the wear and tear of their building and the plant and equipment assets contained in the property. Because of this, many of these owners are losing thousands of dollars annually by failing to have a tax depreciation schedule prepared for property or place of business. Research conducted by BMT Tax Depreciation highlights this lack of awareness around the depreciation deductions available for medical centre owners and tenants. In the last financial year there was a -7.55 per cent decrease in depreciation schedules requested for those who own or lease a medical centre. Items commonly found in medical centres including computer equipment, surgical instruments, treatment beds, instrument washers and medical refrigerators are all depreciable, as are other more generic assets such as air conditioning units, shelving, desks, security systems and free standing furniture. BMT Tax Depreciation specialise in maximising depreciation deductions to ensure investors put more money back in their pockets. By obtaining a BMT Tax Depreciation Schedule, property investors – including medical centre owners and tenants – can rest assured that all available depreciation deductions are found and can be claimed in their tax return each year. Below is an example of the deductions available to medical centre owners and tenants. As this example shows, the depreciation deductions for medical centres can be quite substantial and should not be overlooked. In the first full financial year alone, the owner of this property could claim $85,157 in depreciation deductions. In the first five years, they can claim $255,090. And over the life of the property, the owner was able to claim $709,163. The fee for a schedule is 100 per cent tax deductible. To learn more about claiming depreciation for any commercial property, visit our commercial property depreciation page.

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Why shopping centre owners should try on depreciation for size

BMT team — Fri, 15 Sep 2017 02:27:11 +0000

The face of retail has changed dramatically in recent years. With the rise of online shopping, the arrival of international brands, climbing rents and challenging economic conditions, some shopping centres have started to feel the pinch as these factors affect their bottom line. While consumer spending jumped by 0.7 per cent during the June quarter, household savings was at a nine-year low. This could potentially lead to a decline in retail sales in future. With these factors in mind, it’s important that retail store owners and tenants manage their money wisely. One of the simplest but often overlooked ways that shop owners and tenants can improve their cash flow is by claiming depreciation. The Australian Taxation Office (ATO) allows commercial property owners and their tenants to claim depreciation deductions related to the wear and tear of a building and any existing plant and equipment assets contained within it. Owners are entitled to claim deductions relating to the building structure and any fixed assets and plant and equipment items they own. This can include assets such as bricks, mortar, roofs, basins and car parks. Tenants, on the other hand, are able to claim depreciation on any fit out they install after commencing their lease. This can include anything from clothing racks, counters, light fittings, shelving, security systems, mannequins and fitting room chairs. It’s important for shopping centre owners and their tenants to contact a specialist Quantity Surveyor to discuss what deductions can be claimed. Given that both parties can claim deductions at the same time, both owners and tenants should contact a specialist Quantity Surveyor to each request a depreciation schedule, so each party is maximising the deductions they’re entitled to. As part of the process of arranging a depreciation schedule for any commercial property – including shopping centres – our specialist staff will perform a site inspection to uncover the structural and fixed items that can be claimed as capital works deductions, as well as all of the removable plant and equipment assets contained within the property. They will also uncover any renovations that have been completed to the property, even if they were completed by a previous owner. If a shopping centre owner is intending to undertake any renovations or improvements in the near future, is also important to be aware that they may be able to claim additional deductions for this. For this reason, a schedule should be completed both before and after an renovation works so the owner can claim deductions for the remaining un-deducted depreciable value of any assets removed during the renovation and also include deductions for newly installed assets. By obtaining a BMT Tax Depreciation Schedule, owners and tenants will reduce their tax liability and therefore improve their cash flow. The fee for a tax depreciation schedule is also 100 per cent tax deductible.

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Mechanic shop owners can repair their tax return by claiming depreciation

BMT team — Tue, 08 Aug 2017 06:50:01 +0000

Many mechanic shop owners are unaware that the Australian Taxation Office allows them to claim depreciation deductions based on the wear and tear of their building and the plant and equipment assets contained in the property. As such, many of these owners are losing thousands of dollars annually by failing to have a tax depreciation schedule prepared for their property. Items commonly found in mechanic shops including power tools, vehicle hoists and automatic garage doors are all depreciable, as are other more generic assets such as air conditioning units or fans, shelving, security systems and computer equipment. BMT Tax Depreciation specialise in maximising depreciation deductions to ensure investors put more money back in their pockets. By obtaining a BMT Tax Depreciation Schedule, property investors – including mechanic shop owners – can rest assured that all available depreciation deductions are found and can be claimed in their tax return each year. The fee for a schedule is 100 per cent tax deductible. The following is an example of the deductions we found for an owner of a mechanic shop purchased for $535,000. Items that you may be able to claim depreciation for include: As this example shows, the depreciation deductions for this type of property can be quite substantial and should not be overlooked. In the first full financial year alone, the owner of this property could claim $27,806 in depreciation deductions. Over the life of the property, the owner was able to claim $341,780. As part of the process of arranging a depreciation schedule for any commercial property – including mechanic shops – our specialist staff will perform a site inspection to uncover the structural and fixed items which can be claimed as capital works deductions, as well as all of the removable plant and equipment assets contained within the property. They will also uncover any renovations that have been completed to the property, even those completed by a previous owner. If a mechanic shop owner is intending to undertake any renovations or improvements in the near future, is also important to be aware that they may be able to claim additional deductions for this. A depreciation schedule should be arranged prior to commencing any renovation work and updated after the renovation is complete. This will ensure the owner can claim deductions for the remaining un-deducted depreciable value of any assets scrapped and removed during the renovation and also include deductions for newly installed assets. To learn more about claiming depreciation for any commercial property, visit our commercial property depreciation page.

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The pros and cons of commercial property investment

BMT team — Tue, 18 Jul 2017 05:07:21 +0000

When people think about investing in property, residential real estate is often what comes to mind. But commercial property investment is always worth considering, whether you’re looking to diversify your portfolio, create an alternative avenue of cash flow or simply want to take advantage of the benefits of this type of asset. Below we outline some of the key considerations when investing in commercial property as well as the advantages and disadvantages of this type of investment. Contents: Commercial investment considerations Advantages Disadvantages Commercial investment considerations There are three commercial property sectors – retail, office and industrial. Each sector has its own risks, rewards, trends and considerations and these must carefully be weighed up before deciding which will be the best choice. Furthermore, there are a multitude of different industries you can be involved in within these sectors, from retail to aged care or warehousing, for example. Each industry will offer different yields and returns for the owner, depending on the performance of that industry. Investors should carefully consider this performance as well as future forecasts when deciding what industry they’d like to be involved in. If you’re going to invest in commercial property, you need to understand how this particular market works, how it differs from the residential market and what its drivers are. In addition to population growth, which is the main driver in the residential market, commercial property is also driven by a number of wider economic factors. The economy and interest rates – This will impact on consumer spending, demand for services and business performance as well as the landlord’s ability to pay back a loan. Demographical trends and patterns can affect commercial property and demand. For instance, with the rise of baby boomers making a sea change, there is now more demand for healthcare services in areas traditionally considered holiday locations. As further examples, our aging population has driven the demand for more aged care facilities while the growing need for childcare services has created more competition and demand for this type of property in Australia. Changing consumer habits, often going hand in hand with evolving technologies, have an impact on the commercial property market. Take for instance the rise in online shopping in the past decade which has created demand for more industrial warehouse properties. Financial considerations – obtaining finance for a commercial property differs from getting a residential mortgage and can often be more complex. For instance, pricing may not be set in stone and the terms can sometimes be negotiated. Individuals should consider whether a commercial finance structure will suit them and their investment goals. It’s different in nature to residential investing and these differences should be understood by investors. For instance in commercial property, tenants are able to make alterations, such as a new fit out in a hairdressing salon. It also differs in terms of who pays what bills. This is discussed further below. Advantages There is the potential for greater return on investment. In residential investing, yields are often in the 3-5 per cent range while it’s not uncommon to get yields of 6-12 per cent for a commercial property. Leases tend be longer – three, five or ten year leases are quite common in commercial property. Ideally, this means the owner won’t have to deal with the costs associated with bringing in new tenants so frequently. It may be a way to get into the property market sooner if a would-be investor is struggling to save up for a traditional home deposit. For instance, they may choose to get their foot on the property ladder by purchasing a commercial car park that costs less than a house but still offers solid returns and allows them to build some equity. It allows investors to take advantage of booming industries and changing societal trends. Although there may be greater risk, the rewards can also be superior. Disadvantages While commercial leases typically last longer than residential leases, it usually takes longer to find a tenant when the property becomes vacant. Investors need to consider whether they’ll be able to cover the costs of holding the property while it is untenanted. Commercial real estate is often more sensitive to economic conditions. The commercial property market can be volatile and is often less predictable than residential markets. It can be more complex to obtain finance for a commercial property. For instance, certain types of commercial property may be considered higher risk to the lender or prove more difficult for them to value. This can mean that financing may be trickier than for residential property in some instances. Due to financing requirements, the investor may need a larger deposit to secure approval for a mortgage.

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