CapEx Update Guide: Enhancing Asset Registers to Maximise Depreciation
Commercial tax depreciation allows property owners and tenants to claim deductions on the wear and tear of a commercial building and its assets. By leveraging these deductions, you can reduce taxable income and optimise cash flow, achieving significant financial advantages.
Unlike residential properties, commercial properties have more than 8,000 depreciating assets, making it essential to work with Tax Depreciation Quantity Surveyors who understand the nuances of the industry. At TDQS, we specialise in identifying and maximising these deductions for property owners, tenants, fund managers, and property accountants.
What is a Commercial Property?
A commercial property is any income-producing property designed for business operations. These properties generate income by renting spaces to commercial tenants.
Examples include:
- Office building
- Hotel
- Warehouse
- Shopping centre
- Service station
- Childcare centre
- Retirement village
As these buildings age, their structures and assets experience wear and tear, or depreciation. The Australian Tax Office (ATO) allows property investors and tenants to claim this depreciation as a tax deduction, provided the property is used to generate income.
Types of Commercial Tax Depreciation Deductions
Division 40 – Plant and Equipment Deductions
Applies to assets such as:
- Chillers, cooling towers, and variable speed drives.
- Light fittings, carpets, and other removable items.
- Depreciation rates: Based on the asset’s value and effective life as defined by ATO Commissioners of Taxation Rates.
Division 43 – Capital Works Deductions
Covers the building’s structure, including:
- Walls, floors, and roofs.
- Properties built after 1986 are eligible.
- Depreciation rate: 2.5% annually over 40 years.
Taking advantage of these deductions reduces taxable income while improving cash flow and liquidity.
What is Commercial Property Depreciation for Fit-Outs?
Fit-outs are assets or improvements added by tenants to customise a space for business operations. Examples include:
- Carpets
- Security systems
- Firefighting equipment
- Desks and shelves
- Air conditioning units
- Blinds
Who Can Claim Fit-Out Depreciation?
- Tenants: Can claim depreciation on assets and renovations they install during their lease, provided they incurred the costs.
- Property Owners: May claim depreciation on fit-out via fit-out contribution/incentive or any fit-out left behind by tenants under Division 43, depending on the lease agreement.
Why Choose TDQS for Commercial Tax Depreciation?
- Industry Expertise: Over 28 years of experience in tax depreciation for commercial properties across various industries.
- Comprehensive Reports: Detailed, ATO-compliant depreciation schedules tailored to maximise your deductions.
- Full-Service Support: Whether you’re an owner, tenant, or investor, we ensure you claim every eligible deduction.
