You could be missing out on thousands of dollars in tax deductions by not taking advantage of your warehouse depreciation entitlements. Here’s our complete guide to warehouse depreciation.
What is depreciation?
Depreciation is the natural wear and tear that occurs to a building and the assets within it over time. The Australian Taxation Office (ATO) allows owners of any income producing properties including warehouses to claim a tax deduction for this wear and tear.
Warehouse depreciation deductions
Warehouse depreciation deductions can be claimed for the wear and tear of the building structure via a capital works deduction, and for the plant and equipment assets contained within the property.
Also known as building write-off, these deductions are available for the depreciation of the building’s structure and are based on the historical construction costs of the building and any items fixed permanently to the building. Examples include the bricks, mortar and walls.
When assessing capital works deductions commercial warehouses can fall into two ATO classifications.
The first is as a “building intended to be used on completion for non-residential purposes such as a shop or office”. Investors in this category can claim eligible capital works deductions if construction commenced after 19 July 1982. The depreciation rate will vary depending on the year of construction.
The second classification is a “building intended to be used wholly or mainly for industrial activities”. This category is for industrial warehouses used for manufacturing. Investors can claim deductions on the warehouse’s construction cost at a rate of 4 per cent per year if it was built after 26 February 1992. Visit the ATO website for more.
Plant and equipment assets
Plant and equipment assets refer to items which can be easily removed from the property and can be claimed by property owners in two ways:
- Assets are owned by the property owner not the tenant
- The tenant has vacated the building and left previous assets from a fit-out behind
Warehouse tenants can claim depreciation on any fit-out they add from the starting date of their lease. If a tenant removes items at the end of their tenancy, they may also be able to claim any remaining depreciation for assets that are removed and scrapped when they vacate the warehouse.
This can become complicated to work out who is entitled to claim what, as warehouse owners are also entitled to claim depreciation on assets installed and left behind by previous tenants once a tenancy has ceased. For this reason, it’s important to contact a Quantity Surveyor to ensure that each party makes their claim correctly.
During the 2017/2018 financial year, BMT found warehouse investors an average first year deduction of $28,424 and $103,828 for the first five years. In that same period, warehouse depreciation claims experienced a 22.09 per cent increase.
The growing demand for inventory storage, distribution centres and retail warehousing is largely due to the rise of online shopping in Australia. As the industry continues to grow, it’s important to understand the benefits of claiming depreciation deductions.
For example, Brock owns an industrial warehouse purchased at $1,000,000 and he earns an annual income of $94,276 from renting the premise. His expenses including interest, rates, repairs and maintenance total to $123,320. After receiving a BMT Tax Depreciation Schedule, Brock was able to claim $54,630 as a first-year deduction. See the full case study here.
How to claim warehouse depreciation
Property depreciation can make a significant difference to an investor’s cash flow each financial year so it’s important to organise a tax depreciation schedule.
A BMT Tax Depreciation Schedule lasts forty years, considers industry specific legislation, provides a range of depreciation methods and includes a property inspection.
Ensure you are maximising the cash return from your investment property or business this financial year and Request a Quote today.