Maximise Your Tax Benefits on Commercial Property

WHEN INVESTORS purchase a Commercial property, they will often consider renovating the property after settlement. Especially, if it is an older property in need of a face-lift before tenanting.

By renovating your Commercial property, you can create additional equity and generate extra rent in the process. But the real benefit is that you can also claim thousands of dollars in depreciation deductions — whenever renovations are done to your property.

However, before you do decide to renovate, you should consider requesting a pre-renovation tax depreciation schedule for the property.

This report will identify the value of all assets existing within a property, BEFORE any of them are removed. Renovations can be expensive, so it makes financial sense for you to have an understanding of what depreciation benefits will be available to them?before you proceed.

Now you can start work …

Once the pre-renovation report has been completed, any assets you remove can then be scrapped and immediately written off — providing you with an instant cash-flow benefit.

And you can then choose to set aside some of these funds for the renovation project.

When it comes to selecting which new items to install into a Commercial property … you need to give thought to to the depreciation potential of the plant and equipment items you are adding, or structural alterations you make to the building.

Choosing to install specific types of plant and equipment assets can make a huge difference to the amount of depreciation you will receive, once renovations are complete.

Here are a couple of examples of how (by making the right choices) you can gain even greater benefits from your renovations.

Replacing Floor Coverings

Choosing which floor covering to install (eg: carpet, floating timber floors or tiles) can make a difference to the depreciation deductions available. This is because the depreciation of each item has an effective life, set down by The Australian Taxation Office (ATO).

The following example (based on a $10,000 spend on floor coverings) compares the amount of depreciation available after one year for carpets, floating timber floors and tiles.

As the example shows, carpet has the highest depreciation return after just one year.

Renovation-1Calculations are based on Diminishing Value Method using current legislation.

Installing Air Conditioning

This example (based on spending $5,000 on a cooling system) compares the amount of depreciation available after one year for a split-system air conditioner, and a ducted air conditioning unit.


As you can see, the split-system shows a higher depreciation return after one year.

Structural Items

Any structural construction work completed as part of a renovation can also be claimed, if it took place after the 20th of July 1982 (commercial) or 18th of July 1985 (for residential properties) … even if the renovation was carried out by a previous owner.

Structural renovations are claimed as a capital works allowance (Division 43). When a quantity surveyor completes a tax depreciation schedule they will conduct a site inspection to identify any previous renovation works.

Please note depreciation for renovations can only be claimed on the actual amounts spent. And so, if you (as the property owner) have completed the renovation (or sections of the renovation yourself) … there is no monetary allowance for your personal labour.

Bottom Line: As you can see from the above examples, choosing the type of plant and equipment assets to be installed in a Commercial property can make a considerable difference to the depreciation claim available to you.

Therefore, it’s important you engage a quantity surveyor to conduct a site inspection and produce a tax depreciation schedule — both before proceeding with the work, and after the renovation is complete.

That way, you’ll be able to maximise the depreciation allowances available to you.


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