Do You Really Understand The Fundamentals of Commercial Depreciation?

AS YOU’RE PROBABLY aware, BMT Tax Depreciation has been providing depreciation services to commercial owners and tenants for over 20 years.

During this time, their team has ensured these businesses maximise these returns by claiming millions in tax deductions.

Despite being the only non-cash deduction you have available, many investors are not making the most of the opportunity – or in some cases, not even claiming it at all.

What is it and how does it work?

Property depreciation is the natural wear and tear of a property and its assets over time.

Commercial owners and tenants can claim this depreciation as a tax deduction each financial year, and pay less tax.

To claim depreciation, you need a tax depreciation schedule prepared by a specialist quantity surveyor. And this schedule makes sure that everyone involved claims the most depreciation deductions possible.

How does depreciation work when there’s one building, but also a tenant and an owner?

Commercial investors aren’t always business owners. This means that at times the owner of the commercial property may be a different entity to the business operating from it.

Unlike residential tenants, commercial tenants can claim depreciation on their entire fit-out and other assets they purchase for the property.

These deductions can be claimed in conjunction with the owner claiming deductions on the property’s structure and any assets they own. But how do you ensure there’s no doubling-up in the claims? 

When completing commercial tax depreciation schedules, your specialist quantity surveyors will always complete a physical site inspection. Doing so ensures they can split the schedules appropriately. 

Partial year deductions can boost cash

If you’re a commercial investor only new to the scene, the end of the financial year may come around before you have owned the property for a full 12 months. But that this doesn’t mean you have to wait until the next financial year to claim depreciation. 

BMT has seen partial year deductions boost cash flows by thousands of dollars, even only after a few months.

Therefore it’s very important to organise a tax depreciation schedule sooner rather than later and claim every dollar possible. 

Incentives explained 

The current incentives available to businesses are bigger and better than ever before. 

Temporary “full expensing” is in place until the end of the 2021-22 financial year. This incentive allows businesses with an aggregated turnover of up to $5 billion to instantly deduct eligible assets. 

For example, if an office owner decided to purchase furniture, appliances and window coverings worth $100,000 in total in the 2020-21 financial year, they would be able to claim this amount instantly. 

In addition to the temporary full expensing, the loss carry-back measure allows businesses to claim back their total losses sooner rather than later.

Bottom Line: Usually, if a business makes a loss in a financial year, you must wait until you return to profit to claim this loss in your tax return. Loss carryback essentially reverses this arrangement and allows you to apply this loss to previously taxed profits.

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