May 16, 2025
Introduction: Why Depreciation Deserves More Attention
Depreciation property is one of the most overlooked tools in a commercial property investor’s toolkit. It refers to the wear and tear of a building and its assets over time—deductions you can legally claim to reduce your taxable income. Whether the property is new or decades old, understanding how depreciation works can improve cash flow, support long-term strategy, and significantly enhance your investment return.
Why Depreciation Matters in Commercial Property
🔹 Improves Cash Flow:
Depreciation lowers your assessable income, meaning you pay less tax. The money saved can be reinvested, used to cover expenses, or boost serviceability for future acquisitions.
🔹 Enhances Investment Viability:
With better cash flow, you’re in a stronger position to hold through market cycles and plan for capital growth. For commercial assets, this is critical given longer lease terms and higher-value transactions.
New Commercial Property: Bigger Deductions Upfront
✅ Higher Construction Costs = Higher Claims
New buildings are built with modern, costlier materials and fittings, which means larger Division 43 (building allowance) deductions—typically 2.5% per year over 40 years.
✅ Maximum Life of Plant & Equipment
New HVAC systems, lighting, lifts, and other fit-out assets can be fully depreciated under Division 40. These assets qualify for depreciation leading to larger deductions in the early years or instant asset write-off for immediate deductions.
✅ Full Access to All Deductions
New properties allow full claims on both building structure and installed assets, ensuring you’re not missing out on any potential tax benefit.
Established Commercial Property: Untapped Potential Through Upgrades
🔄 Still Eligible for Depreciation Unlike residential property, commercial investors can still claim depreciation on second-hand assets. Age is not a disqualifier. However, your Division 43 may not be as great as a new building due to its age. 🛠 Renovation = New Depreciation Opportunities Upgrades such as lighting, flooring, or bathroom unlock new depreciation deductions. Renovating can bring an older asset’s tax performance close to a new one’s.Understanding the Law: Division 40 vs. Division 43Division 43 – Building Allowance- Covers structural elements (walls, roof, concrete).
- Claimed at 2.5% annually over 40 years.
- Includes items like lighting, carpets, security systems, lifts.
- Can be depreciated faster using effective life schedules.
- New flooring, ceilings, HVAC, electrical upgrades
- External works such as car parks or signage
- Fit-outs for new tenants
- Attract higher-quality tenants
- Increase rent and property value
- Unlock new depreciation benefits
- Breakdown of Division 40 and 43 deductions
- Tailored to your property and ownership structure
- Adjusted for renovations or partial upgrades
- Estimating construction and asset costs
- Preparing ATO-compliant schedules
- Identifying missed or hidden deductions
- Supporting your accountant with ongoing asset tracking
