The end of the financial year is almost here so let’s take a look at some tax considerations for commercial property investors and tenants.
Here are some tax tips for first time investors in commercial property and for those who have leased their first commercial premises this year.
Before purchasing a commercial property you should consider the type of structure to hold the property in because it can significantly affect your tax liabilities
For instance, commercial property is one of the assets which
Self-Managed Super Funds (SMSFs) can hold. Remember that super funds tend to pay less tax.
You should also consider how you would manage and sell commercial properties
If you own one, consider requesting a Quantity Surveyor’s tax depreciation schedule which will provide you with a list of assets for depreciation purposes to maximise your deductions.
When you sell a commercial property, the date of the capital gain is calculated at the date contracts are exchanged, instead of at the property settlement date (which is used for calculating tax). It is advisable to wait until the 1st of July to extend into another year.
Goods and Services Tax (GST) is a concern as well
A commercial property that is fully tenanted can avoid GST when buying or selling.
Commercial tenants, on the other hand, should consider non-cash incentives related to the property’s fit out even if we all know that rental payments on commercial premises are tax deductible
The tax outcome may be different when the assets are owned by the tenant and when owned by the landlord. If the landlord supplies fit-outs, the tenants would need to pay tax on that as a
non-cash incentive and deduct the benefit.
Tenants should also consider the end of the lease to avoid possible trouble down the line.
Pre-payment of rent before June 30 won’t likely give the taxpayer an additional deduction because of the tax structure
Keep in mind that commercial property rent is often subject to GST for over $75,000 per annum and that owners can claim capital works deductions for construction costs on an ongoing basis. When sold, owners have to lower the cost base by the amount of deductions they claimed throughout the ownership period to avoid double dipping.
Documentation is very important
This includes rental agreements, a Quantity Surveyor’s tax depreciation schedule, loan or debts held against a property and deduction receipts. There are repairs and maintenance that can be deducted immediately and capital improvements that are a long-term depreciation deduction.
PS. Keep all invoices. Talk to your Accountant to understand what you need and map out what you want to do in the coming financial year.