Capitalising on Commercial Tax Depreciation

While residential properties offer a lot of ways to claim tax deductions, commercial properties are not left out either. Both landlords and tenants of a commercial property can claim several items/services under tax deductions. These include existing plant/equipment, strata equipment, and renovation costs, all of which can be covered under depreciation schedule for rental property.

  • Note: The 2017 legislation only stops owners of residential accommodations from claiming tax deductions on plants and equipment. It does not affect owners of commercial properties.

Tax Deductions for Landlords

The primary tax deduction that can be claimed by the owner of a commercial property is the capital works or the building structure. Apart from this, any fit-outs installed by the owner on the property are also eligible for tax deductions. Fit-outs could include flooring, light fittings, curtains, etc. Another type eligible for tax deduction is the strata equipment. Such equipment is installed in the common area for the purpose of public use. Examples include elevators, emergency lights, CCTV cameras, and bathroom gadgets. Landlords might need a depreciation report before filing claims.

Tax Deductions for Tenants

Unlike the landlords, the tenants have limited say as far as tax deductions go. They can only claim deductions on the plants and equipment under Division 40 that they have installed on the commercial property. However, indirectly, there are many other tax deductions tenants can claim. For instance, any renovation undertaken by the tenant on the commercial property is eligible for tax deductions. Then, many industry-specific items that were used to run the business on the commercial property can also be claimed for deductions. Some examples of such items include commercial cooking appliances (in case of restaurants and caterers), dental items (in case of dentists), conveyer belts (in case of logistics), and so on. Any equipment on the premise, that was A) installed by the tenant, and B) used for the purpose of the business, is eligible for a tax deduction. Tenants might also need to prepare a tax depreciation report before filing claims.

Understanding the Scenario with a Simple Example

Consider two people, X and Y. X owns a commercial property that was built many years prior and came with carpet flooring, bench-tops, and some other furniture. He then installed the property with curtains. After this, X rented the property to Y for commercial purposes. Afterward, Y does some renovations to the property, adds cooking appliances for his restaurant and also buys furniture for the visitors.

X would be able to claim the following items for tax deductions:

  • Capital works of the space rented for commercial purpose
  • Bench-tops
  • Carpet flooring
  • Any other plant, equipment or strata equipment existing before the place was rented.

Y would be able to claim the following items for tax deductions:

  • Cooking appliances
  • Renovations
  • Furniture

X would need a Quantity Surveyor to accurately assess the cost of items they can claim for deductions. Y, on the other hand, would only have to supply the cost (and bill) of the items/services he employed on the property. But in both cases, getting a tax deprecation schedule would make things considerably easier for both of them.

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