From Capital Works to Fit-Outs, Maximise Your Returns with ATO-Compliant Depreciation Reports
Why Tax Depreciation Matters for Warehouses
Warehouses are critical components of the supply chain and represent prime opportunities for property investors and tenants to optimise cash flow. Leveraging tax depreciation for warehouses can reduce taxable income and improve liquidity, with depreciation deductions often ranging between 5% and 15% of capital expenditure annually.
As the demand for industrial properties surges, particularly due to the e-commerce boom, understanding and claiming these depreciation advantages has never been more important.
Two Key Components of Warehouse Depreciation
1. Fit-Out Deductions (Division 40)
Warehouse fit-outs include tenant-specific improvements and additions such as:
- Lighting systems
- HVAC systems
- Shelving and storage units
- Other tenant-specific assets
Key Considerations:
- Tenants: Can claim depreciation on the fit-outs they install, provided they bear the cost.
- Landlords: Can claim depreciation on fit-outs they contribute to the property, based on each asset’s effective life as defined by the Australian Tax Office (ATO).
2. Capital Works Deductions (Division 43)
Capital works deductions cover the structural elements of a warehouse, such as:
- Walls, floors, and roofs.
- Fixed fittings and integral construction components.
Depreciation Rates Based on Use:
- Manufacturing Warehouses: Eligible for a 4% annual deduction based on the original construction cost.
- Storage and Distribution Facilities: Deduct at a fixed 2.5% annual rate.
These deductions are particularly beneficial for large-scale, purpose-built warehouses, offering substantial long-term tax savings.
Case Study: Maximising Depreciation for a state-of-the-art Warehouse
Overview
A client invested $37 million in constructing a state-of-the-art warehouse to capitalise on the rising demand for industrial properties. By leveraging TDQS’s expertise in tax depreciation, the client achieved significant financial benefits, with total depreciation identified at $37 million split between Division 40 and Division 43 components.
Depreciation Breakdown
- Division 40 (Plant and Equipment): $6 million (16%)
- Division 43 (Capital Works): $31 million (84%)
This strategic allocation of depreciation provided a comprehensive tax advantage, allowing the client to maximise their deductions and improve cash flow.
The Challenge
Constructing a warehouse involves complex capital investments spread across various components. Accurately identifying and categorising these assets for tax depreciation purposes required in-depth knowledge of tax laws and construction specifics. The client needed:
- A detailed breakdown of depreciable assets.
- A comprehensive and ATO-compliant depreciation schedule.
- Strategies to optimise the first-year and long-term tax benefits.
Our Approach
- Comprehensive Asset Assessment:
- Conducted an extensive review of the property’s construction costs and assets.
- Identified all eligible assets under Division 40 (Plant and Equipment) and Division 43 (Capital Works).
- Customised Depreciation Schedule:
- Allocated $6 million for Division 40, covering movable and equipment-based assets like HVAC systems and lighting.
- Allocated $31 million for Division 43, representing structural elements such as walls, floors, and roofs.
- Maximisation of Tax Deductions:
- Accelerated the depreciation of high-value Division 40 assets for optimal first-year deductions.
- Ensured long-term tax savings by leveraging Division 43’s steady 2.5% annual deduction rate.
Key Outcomes
1. Significant First-Year Tax Savings
- The client was able to claim $850,000 in depreciation for Division 40 assets and $775,000 for Division 43 assets in the first year alone.
- Total First-Year Depreciation Deduction: $1.6 million.
2. Optimised Depreciation Over Total Investment
- Division 40 accounted for 16% of total depreciation, covering high-value movable assets.
- Division 43 accounted for 84% of total depreciation, reflecting the substantial investment in structural components.
3. Enhanced Financial Benefits
- Improved cash flow through reduced taxable income.
- Significant ROI on the $37 million investment by leveraging depreciation strategies.
Conclusion
This case study highlights the importance of engaging experts to maximise depreciation opportunities in industrial properties. By accurately categorising assets and creating a tailored depreciation schedule, the client achieved 16%/84% depreciation allocation over their total investment, ensuring both immediate and long-term financial gains.
Features of TDQS Warehouse Depreciation Services
- Comprehensive Reports: Covering all capital works and fit-out assets.
- Specialised Expertise: Tailored solutions for manufacturing, storage, and distribution properties.
- First-Year Optimisation: Maximise initial tax savings with accelerated depreciation strategies.
- Nationwide Support: Serving clients across Australia with reliable and timely services.
Key Benefits of Choosing TDQS for Warehouse Depreciation
- Maximised Deductions: Identify and claim every eligible depreciation opportunity for your warehouse.
- Tailored Solutions: Reports customised to the specific functions of your property.
- Compliance and Accuracy: ATO-compliant schedules delivered by experts.
