There’s been a distinct rise in demand for industrial property in recent years, particularly for warehouse storage space. This is due to the so-called ‘Amazon effect’ which has resulted in an increase in online retailers requiring the space to store, pack and send orders.
As industrial warehouse demand grows, it’s important for owners or tenants to be aware of the depreciation deductions on offer.
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) and businesses 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, windows, doors 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 at a rate of 2.5 per cent or 4 per cent, depending on the actual date 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. In this case, investors can claim capital works deduction on the warehouse a rate of 4 per cent per year if it was built after 26 February 1992. But if the building was constructed after 15 September 1987 and before 26 February 1992, this rate changes to 2.5 per cent.
Going back even further, a manufacturing warehouse constructed between 21 August 1984 and before 15 September 1987,the rate changes again to 4 per cent.
You can visit BMT’s capital works deductions webpage for a reference table showing these dates.
Plant and equipment assets
Plant and equipment assets refer to items which are mechanical or easily removable and these assets can be claimed by property owners:
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 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.
How to claim warehouse depreciation
Property depreciation can make a significant difference to a property owner’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.
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