22 May Frequently asked depreciation questions for commercial properties
Owners of commercial properties are often unaware of the depreciation deductions they’re entitled to.
To help commercial property investors to understand how depreciation can assist them to maximise their cash return, below are some of the most common questions the experts at BMT Tax Depreciation are asked.
By learning more about commercial property depreciation, investors can ensure they get the most out of their investment property and put more in their pocket during tax time.
1. What is depreciation?
As a building gets older and items within it wear out, they depreciate in value. The Australian Taxation Office (ATO) allows property investors to claim a deduction relating to the building and the plant and equipment items it contains. Depreciation can be claimed by the owner of any income producing property and essentially reduces the investment property owner’s taxable income.
2. If a commercial property was built before 1982, is it too old to attract depreciation?
No, an investment property does not need to be new. Both new and old commercial properties will attract some depreciation deductions.
Investors often assume that older properties will attract no deductions due to restrictions outlined in legislation regarding capital works deductions. ATO legislation states that commercial property owners can claim capital works deductions (relating to the structure of the building such as walls, roofs and doors) for any commercial property in which construction commenced after the 20th of July 1982.
Despite this, often older properties have undergone renovations. Any structural work completed to a commercial property within the legislated dates will entitle a commercial property owner to claim capital works deductions, even if the work was completed by a previous owner of the property.
There are also no date restrictions when applying deductions for plant and equipment assets in commercial properties. These items depreciate based on an individual effective life and it is the condition and quality which contributes to the depreciable life.
3. How is a building’s age calculated?
The age of the building can be determined by obtaining council documents with dates pertaining to the original application approval date or the occupancy certificate date and final inspection date. A specialist Quantity Surveyor will conduct the relevant searches to accurately determine the age of a building. This includes historical council searches regarding lodged development applications, as well as occupancy certificates and certified final inspections.
4. Can commercial building tenants also claim deductions?
The simple answer is yes. This is an important factor to be aware of as it can make it difficult for commercial property owners and tenants to ensure their depreciation deductions are claimed correctly without seeking the expert advice of a Quantity Surveyor.
Commercial property owners and tenants simultaneously can claim deductions for a commercial property as the building owner can claim the original structure and assets contained within the property while the tenant is entitled to claim deductions for any items installed during a fit-out after their lease commencement date.
If lease conditions mandate a tenant returns the building to its original condition on termination of their lease, if there is any remaining depreciable value for assets removed, the tenant may be able to claim these deductions in full in the year of the items’ removal. If items are left behind after a tenant vacates, the commercial property owner can claim depreciation for these items.
5. Who is qualified to estimate construction costs for depreciation purposes?
Quantity Surveyors are qualified under the tax legislation TR 97/25 to estimate construction costs for depreciation purposes and are one of a few select professionals who specialise in providing depreciation schedules. A depreciation specialist such as BMT Tax Depreciation can prepare a comprehensive depreciation schedule that will maximise the returns available for both commercial property owners and/or their tenants. To find out more simply contact one of the expert staff at BMT on 1300 728 726 today.
Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.