As a hotel or motel owner, you could be missing out on thousands of dollars in cash flow each year by not claiming tax depreciation, a powerful but also overlooked strategy in the hospitality industry.
Below, we’ve created a simplified guide on how tax depreciation works and why it is especially beneficial to accommodation properties, such as hotels and motels. Whether you recently purchased one or have been in the investment game for years, this guide is here to help you maximise your returns with confidence.
How does depreciation work for hotels and motels?
Hotel or motel depreciation is a way to claim the wear and tear on your building and its assets as a tax deduction over time.
Just like a car loses value the more you drive it, your hotel or motel — including the rooms, fittings, and equipment — also loses value as it ages or gets used. The Australian Taxation Office (ATO) lets you claim that loss in value each year as a tax deduction, which can significantly reduce your taxable income and boost your cash flow.
How to maximise my hotel or motel depreciation deductions
As a hotel or motel owner, depreciation can be a great strategy to implement in your investment journey, reducing your taxable income. When it comes to maximising your available depreciation deductions to your investment property, it’s all about knowing where the hidden savings are and using them wisely. Here are a few strategic tips on how you can achieve that:
What is the depreciation rate for Hotels and Motels?
In Australia, the depreciation rate for hotels and motels—classified as “traveller accommodation”—depends on the construction commencement date and the property’s intended use.
Capital Works Deduction Rates for Hotels and Motels
Under Division 43 of the Income Tax Assessment Act 1997, capital works deductions apply to the structural elements of income-producing buildings. For hotels and motels, the applicable depreciation rates are:
- 4% per annum over 25 years: Applicable if construction commenced between 22 August 1984 and 15 September 1987, or after 26 February 1992, and the building is intended to provide short-term accommodation to travellers, such as hotels, motels, or guest houses with at least 10 bedrooms.
- 2.5% per annum over 40 years: Applicable if construction commenced between 21 August 1979 and 21 August 1984, or between 16 September 1987 and 26 February 1992, and the building is used for income-producing purposes.
These rates are based on the construction commencement date and the building’s intended use. The 4% rate is generally available for buildings providing short-term traveller accommodation, while the 2.5% rate applies to other income-producing buildings.
It’s important to note that capital works deductions can only be claimed from the date construction is completed, and the deductions are based on the construction costs, not the purchase price of the property. If actual construction costs are unknown, a qualified quantity surveyor can provide an estimate, and the cost of obtaining this estimate is tax-deductible.
Speak to an Industry Professional
To avoid any errors, ensure your depreciation schedule has been prepared by an industry specialist. Unlike commercial or residential properties, the construction of a hotel and motel, along with its included assets, is vastly different from the building and assets of a standard residential property.
A specialist quantity surveyor will know their way around a hotel and motel, know and understand the costs of construction and asset values, and will have a better understanding of the details around how to maximise depreciation for maximum benefit.
Making use of instant-asset write-off provisions and attributing appropriate values and effective lives for assets can all make all the difference in the outcome of your report and therefore the cash flow of your hotel and motel.
Maximise your hotel or motel depreciation
Important Notes
- You can only start claiming the deduction once construction is complete.
- The deduction is based on the construction cost, not the purchase price.
- If the actual construction costs are unknown, you can obtain an estimate from a qualified quantity surveyor, and the cost of this estimate is deductible in the year it’s incurred .
For detailed guidance tailored to your specific situation, consider consulting a tax professional or using the ATO’s Depreciation and capital allowances tool.
