Depreciation: 3 Tips to Know

SURPRISINGLY, most Commercial property owners still remain unaware of their full depreciation entitlements.

In fact, around 80 per cent of commercial property owners don't claim depreciation; and therefore, miss out on thousands of dollars.


And yet, claiming depreciation is paramount for commercial property owners, as it can help to turn a property with a negative cash flow into a positive cash flow asset.

To help you maximise deductions as a commercial property owner, here are three depreciation tips.

1. What is Property Depreciation?

The Australian Taxation Office (ATO) requires investors to report any income earned from a commercial property as part of preparing their income tax assessment.

As part of this assessment, commercial property owners are entitled to claim depreciation. Depreciation is a deduction due to the wear and tear of a buildings structure (capital works deduction) and its fixtures and fittings (plant and equipment items).

2. No property is Too Old

Capital works deductions can be claimed for any commercial property in which construction commenced after the 20th of July 1982.

Despite these restrictions outlined by the ATO, the owner may still be entitled to claim depreciation for recent renovations which have taken place, even those completed by a previous owner.

Plant and equipment depreciation can be claimed regardless of the age of the property. Examples would include: carpets, air conditioning units and light fittings.

Commercial property owners should contact a depreciation specialist will who visit the property; and carry out a detailed survey including identifying, measuring and costing the building, fixtures and fittings.

They will then provide a tax depreciation schedule outlining all the deductions available for the life of the property (forty years).

3. Depreciation of Your Fit-out

Both owners and tenants have the right to claim depreciation when it comes to any fit-out installed in a commercial property.

Commercial tenants can claim depreciation on any fit-out they add to a property. And examples would include: desks, blinds, shelving, fire fighting equipment and security systems.

Commercial building owners may also be able to claim depreciation on any fit-out left behind by previous tenants once their tenancy has ceased.

However, if lease conditions mandate that tenants return a property to its original condition at the end of a tenancy ... a Quantity Surveyor can prepare a depreciation schedule conveying the items which have been removed.

And then, the remaining depreciable value of these items can be written off as a deduction in the year of their removal by the tenant.

Bottom Line: Given the complexity surrounding these calculations, it is vital that you obtain advice from an expert.