Setting up shop

Depreciation helps business owners to save

Opening the doors of a new business can be an exciting, but busy time for all new business owners.

New business owners can use depreciation claims to recoup some of their initial start-up costs. Learn how one café owner was able to claim $15,471 in deductions.

This process usually involves spending money installing assets and fitting out the new space appropriately in order to suit your needs.

One of the ways new business owners may be able to recoup some of their initial start-up costs is by making sure they are maximising their depreciation claim.

Depreciation deductions are available for all types of commercial properties for the wear and tear that occurs to the structure of the property and the items it contains.

Unlike residential properties, both owners and tenants can claim depreciation deductions. The owner can claim the building structure and any plant and equipment assets already found in the building, while the tenant can claim any assets they own or contribute from the start of their lease.

While depreciable assets vary widely between industries, some typical fit out items which can be claimed by a commercial property tenant include:

  • Security systems
  • Air-conditioning units
  • Window dressings
  • Lights and light fittings
  • Signage
  • Firefighting equipment
  • Cash registers
  • Safes

Below is an example of how BMT Tax Depreciation helped one tenant to generate additional cash flow for a medium sized café simply by claiming depreciation.

As the premises had previously already been established as a café, most of the usual fixtures and fittings were already in place and the tenant only needed to add a few additional items before the business was ready to open.

After hearing about the benefits of depreciation from their Accountant, the tenant arranged a BMT Tax Depreciation Schedule.

The table below provides a summary of the items the tenant installed, their cost and the first full year depreciation deductions that were claimable.

This business owner did not qualify for the accelerated depreciation methods available to small business owners. BMT has therefore calculated depreciation using the diminishing value method rate, allowing the investor to claim these assets based upon their effective lives.

Asset
Cost
First full year deduction
Coffee machines $4,294 $1,718
Dishwashers $3,529 $882
Furniture – not freestanding $4,500 $450
Hot food display cabinets $1,482 $296
Cash registers $1,999 $400
Signage $5,598 $1,120
Floating timber floors $9,125 $1,217
Cooking appliances $22,630 $4,526
Security system $6,100 $2,440
Telephone system $1,588 $454
Refrigeration assets $6,988 $1,398
Surround sound music system $1,424 $570
Totals $69,257 $15,471

Assumptions and disclaimer

As the example shows, the tenant was able to claim $15,471 in deductions for the first full financial year for assets installed during the fit out of the café. The additional cash flow from depreciation helped the tenant to recoup some of the costs incurred during the start-up phase of the business.

Separate comprehensive tax depreciation schedules are recommended for the property owner and tenants to help both parties to maximise their depreciation claims.

Find out more about depreciation for commercial tenants and owners today by visiting our commercial tenants page, or commercial owners page.