Commercial Blog

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10 commercial property depreciation tips for new business owners

Author: Bradley Beer | Source: Australian Property Investor

Starting a new business can be quite daunting, particularly if you’re trying to do so within a strict budget.

On top of other start-up costs such as purchasing stock or merchandise, arranging insurance, budgeting for staff overheads and (if you don’t own the building) allocating funds to pay rent, there are often costs involved in installing assets to fit out the new space so that it’s appropriate to operate when opening the doors to customers.

What many business owners don’t realise is that they’re entitled to claim depreciation deductions.

Here are 10 facts about commercial property depreciation business owners should be aware of and areas they should consider that can help them ensure they receive the maximum deductions possible:

1. Depreciation deductions are available for the wear and tear that occurs to a building as it ages, and the plant and equipment assets contained.

2. The structure of a commercial building and any fixed items can be claimed as capital works deductions. Examples include the walls, roof, windows, doors, tiling, toilets and fixed cabinetry.

3. Depending on the type of commercial property and its use, capital works deductions will be calculated at a rate of either 4 per cent over 25 years or 2.5 per cent over 40 years.

4. Deductions for capital works can be claimed if construction began after July 19, 1982, for most commercial properties with the exception of short-term accommodation for travellers, which must have been constructed after August 21, 1979. If a building constructed prior to these dates has undergone structural renovations, this work may still entitle the owner of the building to claim capital works deductions.

5. Unlike the building structure, depreciation for plant and equipment is not restricted by date, as the individual condition and quality of each asset will contribute to the depreciable amount. The Australian Taxation Office (ATO) provides an effective life and depreciation rate for each individual item.

6. In a commercial property, both owners and tenants can claim depreciation deductions. The owner can claim the building structure and any plant and equipment assets found in the building while tenants can claim depreciation on any assets they own or contribute to a property from the start of their lease.

7. Some lease conditions mandate that tenants return a property to its original condition when vacating. If removing and disposing of any fit-out from a property on termination of a lease, there may be remaining depreciation available that can be claimed in the same financial year as the items’ removal. Building owners may also be able to claim items that have been left behind by previous tenants.

8. There are a range of tax concessions owners of small business with an aggregated turnover of less than $2 million can receive. These concessions currently mean that small business owners can claim an immediate write-off on assets valued less than $20,000.

9. To maximise depreciation claims, commercial property owners and tenants should contact a specialist quantity surveyor to obtain a comprehensive tax depreciation schedule. A depreciation expert will perform a detailed site inspection of the property to take detailed notes and photographs to ensure no items are missed.

10. Those who haven’t claimed or maximised depreciation can ask for their previous tax returns to be adjusted. Individuals and small business can generally request the previous two years’ claims to be amended and other taxpayers can request the previous four years to be amended from the day after the ATO provided the notices of assessment.

Commercial properties can provide significant deductions for both owners and tenants, which can result in valuable cash flow and reduce some of the costs involved in the start-up of a new business venture.