April 25, 2025
Introduction: What You Can Claim Depreciation on Your Commercial Property as a Tenant
Tax depreciation for commercial tenants is a powerful tool in Australia. It allows businesses leasing a property to claim deductions on the wear and tear of specific assets over time. These deductions directly reduce taxable income, boosting overall cash flow and improving the business’s financial performance.
While many associate depreciation with property owners, commercial tenants can also benefit—especially when they install their own equipment, complete fit-outs, or undertake renovations. The key to unlocking these savings lies in securing a professionally prepared tax depreciation schedule.
At TDQS, our expert Quantity Surveyors specialise in preparing comprehensive depreciation schedules for commercial tenants. Our team identifies eligible assets, ensures compliance with Australian Taxation Office (ATO) regulations, and maximises your deductions—whether you’re fitting out a medical clinic, café, office, or retail store.
Understanding what qualifies and how to claim tax depreciation ensures you’re not leaving money on the table. This guide explains what you can and can’t claim, the process of creating a depreciation schedule, and real-world examples to illustrate the savings potential.
What Is a Tax Depreciation Schedule?
A tax depreciation schedule is a detailed report outlining the depreciation deductions a commercial tenant can claim on eligible assets within a leased property. It serves as an essential document prepared by a qualified quantity surveyor and is used to legally substantiate depreciation claims submitted to the Australian Taxation Office.
The schedule identifies each individual depreciable item, assigns it an effective life as per ATO guidelines, and calculates the yearly deductions you’re entitled to claim. Assets may be categorized under Division 40 (Plant and Equipment) or Division 43 (Capital Works), with tenants generally eligible for deductions under Division 40 and for certain improvements they make.
TDQS prepares these reports with the precision and diligence expected of a RICS-regulated and Tax Practitioners Board-registered firm. Each schedule is customised based on an in-depth on-site inspection, asset evaluation, and understanding of your business fit-out.
Having a tax depreciation schedule not only ensures compliance with current tax laws but also unlocks potential cash flow by maximising allowable deductions over the life of your tenancy.
Eligibility for Tax Depreciation as a Tenant
Commercial tenants may be eligible to claim depreciation if they lease a property for income-generating purposes and have installed or upgraded assets within the premises. The eligibility is largely determined by asset ownership, usage, and the nature of the lease agreement.
To claim depreciation, the property must be used for business purposes, and the depreciable assets must have been purchased or installed by the tenant—not the landlord. These assets are typically not part of the building’s original structure but are additions made to facilitate the tenant's operations.
Examples include installing new kitchen equipment in a restaurant, adding dental chairs in a clinic, or upgrading lighting and furniture in an office or retail store. In these cases, tenants bear the cost of acquisition and installation, making them eligible to claim depreciation under Division 40.
Additionally, certain structural improvements or fit-outs may also be eligible if carried out and funded by the tenant. It’s important to assess the lease agreement carefully to distinguish which improvements are tenant-owned versus those that remain the landlord’s responsibility.
TDQS helps clarify eligibility through a detailed analysis of lease terms, asset ownership, and the nature of each improvement. This ensures that every possible deduction is legally claimed and that tenants benefit from the full financial potential of tax depreciation.
Division 40: Claiming Depreciation on Plant and Equipment
Division 40 of the Income Tax Assessment Act 1997 outlines the rules for depreciating assets considered plant and equipment. These are assets with a limited effective life that can be depreciated over time. For commercial tenants, Division 40 represents a significant opportunity to claim tax deductions on assets they install as part of their business operations.
Examples of tenant-installed Division 40 assets include commercial kitchen appliances in restaurants, dental chairs and medical devices in healthcare practices, display shelving in retail shops, and conveyor belts in manufacturing facilities. These items are classified as plant and equipment because they are not integral to the structure of the building and are used to produce income.
The Australian Taxation Office assigns an effective life to each asset type, which determines the rate at which it can be depreciated. Tenants can choose between the diminishing value method and the prime cost method to calculate their annual depreciation, depending on which approach best aligns with their financial strategy.
TDQS ensures each eligible asset is accurately identified and assigned the correct depreciation rate. This process not only enhances compliance but also maximises the financial benefit to your business. By capturing all qualifying plant and equipment assets in your depreciation schedule, TDQS helps ensure no deduction is left unclaimed.
Examples of Division 40 Assets by Industry
The types of assets eligible for depreciation under Division 40 vary significantly across industries. Understanding common industry-specific examples can help tenants identify opportunities to claim tax deductions more effectively.
- Hospitality: Ovens, dishwashers, coffee machines, and ventilation systems.
- Healthcare: Dental chairs, x-ray machines, sterilisation units, and examination lights.
- Retail: Point-of-sale systems, shelving, mannequins, lighting fixtures, and display cabinets.
- Manufacturing: Conveyor belts, compressors, robotic arms, and generators.
TDQS leverages deep industry knowledge and on-site inspections to ensure no eligible asset is overlooked.
Tenant Fit-Outs and Renovations Eligible for Depreciation
Fit-outs and renovations are common in commercial leases as tenants adapt their leased space to suit business needs. These modifications often involve significant capital expenditure, which may be depreciable under tax law if funded and installed by the tenant.
Examples of eligible fit-outs include the installation of new flooring, custom lighting fixtures, office partitions, built-in cabinetry, and redesigned reception areas or storefronts.
If the tenant bears the cost and ownership of the fit-out or renovation, these expenses may be depreciated under Division 40 or, in some cases, Division 43.
TDQS helps tenants compile and assess all relevant costs, ensuring full compliance and maximum claim potential.
Maintaining Records to Maximise Depreciation Deductions
Accurate and comprehensive record-keeping is critical for depreciation claims. Tenants must retain:
- Invoices
- Contracts
- Bank statements
- Installation photos
- Service agreements
TDQS supports clients with audit-ready documentation, helping you stay organised and compliant year after year.
What Tenants Cannot Claim Depreciation On
Tenants cannot claim depreciation on:
- Structural components (walls, roof, windows)
- Pre-existing landlord-owned assets (e.g., HVAC or flooring)
TDQS carefully reviews your lease and asset history to ensure your schedule includes only eligible, tenant-owned improvements.
The Role of TDQS in Creating a Depreciation Schedule
TDQS offers:
- On-site inspections
- Asset classification under Division 40/43
- Custom schedules with correct effective life & depreciation method
- ATO-compliant reports prepared by registered tax agents
With national coverage and industry credentials, TDQS is your trusted depreciation partner.
Ready to Maximise Your Tax Savings?
Don’t let valuable depreciation deductions go unclaimed. If you’re a commercial tenant investing in your leased property through equipment, fit-outs, or renovations, a professionally prepared tax depreciation schedule is essential to improving your cash flow and reducing your taxable income. TDQS offers expert support tailored to your business, ensuring full ATO compliance and maximising every eligible deduction.
Contact TDQS today for a personalised consultation and unlock the full tax-saving potential of your commercial tenancy. Your assets are working hard—make sure your tax depreciation strategy works just as hard.
