With tax time quickly approaching, many property investors will be preparing to visit their Accountant to complete their annual income tax assessment.
Getting your tax in order can be a confusing task at the best of times, but when you’ve got a commercial investment property, it can get even more complex.
Here are five tax time tips for commercial property depreciation, to help ensure you’re claiming everything you’re entitled to.
1. Claim for new and old properties
Both new and older commercial properties will attract some depreciation deductions. It is a myth that older properties do not attract a claim.
Although the Australian Taxation Office (ATO) places restrictions on claiming capital works deductions (depreciation for the structural elements of a property, such as roofs, walls and floors) there are no date restrictions for depreciating plant and equipment assets.
The ATO advises that the owner of any commercial property in which construction commenced after the 20th of July 1982 can claim capital works deductions. On the other hand, depreciation deductions for plant and equipment assets are calculated based on the individual effective life for each item set by the ATO.
Deductions for plant and equipment are also dependent on each asset’s condition and quality. As these items are rarely the same age as the property, generally having been updated over time, there are often significant deductions available to the owner for plant and equipment depreciation claims.
So in a nutshell, if the building itself is too old for a depreciation claim, the owner can generally still claim for the plant and equipment assets contained within.
2. Claim renovations completed by previous owners
Any renovations completed to an investment property can also be claimed, even if they were completed by a previous owner.
This includes items which may not be obvious such as new plumbing, water-proofing or updated electrical wiring.
For capital improvements of a structural nature to qualify as a capital works deduction, the renovation must have commenced within the qualifying dates set by the ATO.
Recently installed plant and equipment items are also likely to receive higher depreciation deductions. This is due to the increased costs involved in purchasing and installing these assets and the condition the assets are likely to be in when a specialist Quantity Surveyor makes their assessment.
3. Both tenants and owners are entitled to claim depreciation for any fit-out
Commercial tenants can claim depreciation for any fit-out they add to a property once their lease commences. This includes items such as desks, blinds, shelving, carpets, vinyl, fire fighting equipment and security systems.
If lease conditions mandate a tenant return the property to its original condition, they may also be able to claim a write-off for any remaining depreciable value available on scrapped assets.
This 100 per cent deduction must be done in the same year as the item is removed from the property. Any assets a tenant leaves behind after the tenancy has ended can also be claimed by the commercial property owner.
Deductions for fit-outs can become very complicated, so it is important to consult with an expert.
4. Don’t wait if you have only just purchased a property
Property investors will often wait until the next financial year to claim depreciation deductions if they have only just purchased a property. However by doing so, they are missing out on valuable cash flow that can be particularly beneficial so soon after outlaying substantial funds to secure the property.
Specialist Quantity Surveyors use legislative tools, for example immediate write-off and low-value pooling, to make partial year claims more beneficial to property owners. It is worth consulting an expert to find out what claims are available.
Investors can also claim the tax depreciation schedule fee straight back in the same financial year if they arrange the schedule before the 30th of June.
5. Previous year’s tax returns can be adjusted
If a commercial property investor has not been claiming depreciation, the previous two financial year’s tax returns can be amended.
A tax depreciation schedule can provide the details of any deductions missed for the investor to make a claim and recoup these deductions.
To order a schedule so you can start claiming depreciation deductions this tax time, apply online now.