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AS THE END of the financial year approaches, commercial property players should know their tax implications – especially first-time commercial property investors, who need to be aware of the key differences for owners and tenants.
Setting Up Correctly
Investors should first consider what type of holding structure they plan to use, because this can significantly impact your tax liabilities.
For example, self-managed super funds can hold commercial properties and allow you to pay less tax. A detailed quantity surveyor’s depreciation report will give you a list of assets, to help maximise your deductions.
CGT & GST Issues
When you sell your commercial property, the Capital Gain date is exchange (and not settlement) for tax purposes. Therefore, it is often advisable to wait until 1 July, to push back into another tax year.
On the other hand, if a commercial property is fully tenanted, you can avoid paying GST when buying or selling.
Deductibility
Meanwhile, rental payments on commercial premises are tax deductible for tenants. If you are a commercial tenant, you should pay attention to non-cash incentives related to the property’s fit-out.
If the landlords supply a fit-out, they would have to pay tax on it as a non-cash incentive; and deduct the benefit.
Common Misconceptions
People usually make the mistake of pre-paying rent before 30 June – which may not get them an extra deduction, due to the tax structure.
Another misconception is the GST, which rent for commercial property is often subject to.
Lastly, owners usually think they can claim capital works deductions on an ongoing basis. But when you sell the property, you must actually reduce your cost base by the amount of deductions already claimed throughout your ownership.
Bottom Line: It is important to document taxes, rental agreements, quantity surveyor reports, outline of loans and debts and receipts for deductions. Repairs and maintenance are immediately deductible; while capital improvements represent a long-term depreciation deduction.
Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.
I’m glad that you talked about quantity surveyors being able to make a depreciation report to help maximize tax deductions. My wife and I did our own taxes this last year, and I think that we really could have used the help from quantity surveyors to save us a little. I’m going to have to see if we can find a good tax service with quantity surveyors and see if we can do a little better on taxes for this year!