Depreciating Commercial Property
Are you currently leasing commercial space but thinking of buying? Or are you considering investing in property but can't decide between a commercial or residential investment? You need to understand the tax depreciation allowances that are available to you as an investor of commercial property. There are some major differences from the allowances claimed on residential property and it can mean substantial savings for you.
1. You can occupy the property and still claim tax depreciation
Many people buy commercial property in their own name or self-managed super fund and then lease the property back to the business they own. This enables the individual tax payer or super fund to claim the tax depreciation allowance - which can be significant on commercial property. It is totally legal - you can spend as much time in the office as you like and the ATO will not consider it your principal place of residence.
2. Older commercial buildings qualify for the building allowance
Building allowance refers to the decline in value of the bricks, concrete, etc of your property. The date construction commenced determines what building allowance you can claim. On non-residential properties the allowance is as follows:
Construction from:
20 July 1982 - 21/22 August 1984 - 2.5%
21/22 August 1984 - 15/16 Sept 1987 - 4%
15/16 Sept 1987 onwards - 2.5%
3. Claimable items vary by industry and effective life.
Each year the Tax Commissioner publishes a list of what items you can and can't claim. Commercial property owners don't have their own list but some items are claimed at different rates to residential properties. For instance, carpets are claimed over an 8 year period in commercial and a 10 year period in residential.
There are also industry specific items that the tax office has detailed for depreciation claims. For instance if you own a restuarant you will be able to claim items specific to your line of business.
Other key tax-saving considerations:
- The higher quality the commercial property the higher the depreciation allowance.
- Taller buildings have more services such as lifts and fire services so the taller the commercial property, the higher the depreciation allowance.
- If original costs of construction are unknown, instruct a qualified quantity surveyor to estimate those costs.
- Use our exclusive tax depreciation calculator to run through some scenenarios between residential and commercial properties to work out which will give you the best return.
- Don't exchange until you have reviewed the contract of sale and capital expenditure forecast to ensure you maximise tax depreciation.
Got questions or need more information?
Read our commercial depreciation faqs or service overview on the Washington Brown website, or talk to our commercial depreciation expert Ken Yu on 1300 99 06 12 or email him.