Property Depreciation Schedules - The New reality

The future of office buildings…

Is the office as we know it dead?

MUCH has been said about the future of workplaces since COVID-19 forced some major changes to office life as we know it,  kicking flexible work practices into gear.

At this stage, no one really knows how offices will look in the future as uncertainty still abounds, but we do know that workplaces will undergo (potentially lasting) change.

Health and safety will be a huge factor, with social distancing requirements and even temperature testing being introduced in some buildings, but flexible working arrangements will also determine how future offices will look.

I look into my crystal ball at the end of this blog

COVID-19 Handshake

How will workplaces change?

COVID-19 has necessitated the most transformational shift for work in perhaps a century, says McCrindle Communications Director Ashley Fell, who just released a new book about this topic in conjunction with Mark McCrindle called Work Wellbeing: Leading thriving teams in rapidly changing times.

“The most notable was when almost overnight the office-bound workforce globally relocated to their homes,” she says.

“The digital transformation of our organisations was achieved not through management strategy or a new technology solution, by the realities of this virus.

“For the first time in modern history working from home became the norm and even ushered in the three-letter acronym to describe it: WFH. And it is here to stay.”

In the future it is likely we will see our office spaces change to accommodate more flexible working styles and less people in them all the time, says Fell, with most workers in this knowledge economy having more of a regular opportunity to work a day or two from home.

“Our national survey amid the COVID-19 crisis showed that 69% said they were as, if not more, productive when working from home than they were at their office.

“It also showed that far from being a temporary response to a global pandemic, 78% said that working from home will become the new normal.”

Workplaces will also change to become COVID-safe, enabling social distancing and safety and health measures.

Property Council Chief Executive Ken Morrison says the Property Council has worked closely with Safe Work Australia on guidelines for office buildings, including how to manage lifts, common areas of buildings and change room facilities for cyclists and people running or walking to work.

“There is now comprehensive advice available to help building managers and businesses to make their workplaces COVID-safe. Our members have been proactively addressing these issues to provide a COVID-safe environment for their tenants and their workers.

“As people are able to return to their offices, we believe they will do so in increasing numbers depending on their local public health restrictions.”

Offices are here to stay

With more people working from home it is likely we will see less demand for full utilisation of office spaces that has been the norm over the last few decades, says Fell. But that doesn’t mean offices will be gone entirely.

“The office will still be important in the future, but likely for collaboration, creativity and social interaction – the parts of work that are harder to achieve when workers work remotely.”

While there are some who say COVID-19 is the death of the CBD or the office building, says Morrison, and we may see some tenants provide more of their people with flexible working arrangements, at the same time they may also need more space in their offices to accommodate physical distancing.

“There may be some changes to the way we configure our offices, but they will still be a very important part of our working lives.”

While Australians have shown great versatility in making the shift to working from home, many are keen to get back to their workplace and reconnect with their work colleagues in person, adds Morrison.

According to an ABS survey recently, 86% of working Australians were somewhat comfortable in resuming attendance at their usual workplace, he says.

“There are lots of positive benefits to working in an office including the opportunities they present for critical ingredients for business success, including collaboration, creativity, innovation, learning, mentoring and developing and sustaining team culture.

“Many businesses have been able to manage remote working so well because of the close internal and external networks that their people developed in the pre-pandemic. Businesses have been surfing off the previous benefits of working in offices.

“It’s also a practical issue – not everyone can do their jobs as safely or efficiently from home, so we need to make sure that our CBDs and offices are open and working again to support those businesses which need a physical premises for their staff.”

LJ Hooker Commercial Managing Director Mathew Tiller says while there will be some businesses that see COVID-19 workplaces changes as a way to reduce costs and move some work online, many businesses will be unable to reduce their office space as they will need to ensure social distancing requirements are maintained.

He says those in the former category are also unlikely to do away with the office entirely.

“They will still need a central point to meet; a place where employees can catch up and engage with others.

“Working from home is great in terms of not having to commute to the office, but human interaction is also still very important for culture of work and mental health of employees. It also cultivates ideas and strategy.

“There will always be a need for office space; it will just be used differently and for different purposes.”

Tiller says the location of offices may also change, with many businesses likely to consider moving from the CBD to a suburban office closer to where employees live.

What do I see when I look into my crystal ball?

From an Investor Viewpoint:

In my view office buildings will become more spread out over time. We may find more suburban co-work spaces in the future. People will still want to physically interact, albeit less often.

I can see some CBD Offices being converted to residential over time.

I can’t see too many new office buildings being given the green light in the future.

Smaller office spaces may become more in demand as companies downsize to reflect the new working from home reality.

If you don’t own an office and are thinking of having a small hub where workers can get together and share space, now might be a good time to start looking.

From a Tenant Perspective:

If you are a tenant with a lease that’s about to expire, now could be a good time to negotiate.

You may have a clause that allows you to “re-set” the rent based upon an independent market valuation, rather than an automatic increase or linked to CPI.

I expect to see a lot of sub-leasing space coming onto the market over time.

As a rule of thumb, businesses require roughly between 8 and 12 square metres of gross space per employee. With more employees working from home, companies could in effect get two employees in that space on a co-sharing basis, thus reducing the need for office space in the future.

Whether you’re an investor of office space, or a tenant, you can get a depreciation schedule quote with our quantity surveyors

Commercial Space Deductions

claiming commercial deductions

Make Sure You Claim All Depreciation on Your Commercial Real Estate

If you’re thinking about buying commercial real estate in Melbourne, you need to prepare yourself. Many people fail to claim the commercial tax deductions in Australia that are due to them. This results in thousands of lost dollars.

You can claim for all sorts of things on your commercial real estate property. For example, you can claim deductions for the wear and tear of your fittings, furniture, and the structure itself. In fact, making the right deductions at the right time can affect cash flow. You can change a negatively geared property into one that enjoys a good cash flow.

So now you’re probably wondering how to maximise depreciation on your commercial investment property in Australia. Our guide will show you how.

Get the Ownership Structure Right

How you buy your commercial property is just as important as the type of property you buy. You need to have the right structure in place if you’re going to claim the maximum depreciation.

For example, you can increase your deductions if you buy the property using a trust. The same is true if you buy with your self-managed superannuation fund (SMSF). In both cases, you can split your deductions. You can make claims on the building as a standalone entity. Furthermore, you can also claim on any tenancy assets. However, you must operate a business in the property to do this. Depreciation Quote Schedule

Furthermore, you can claim for any capital works you undertake during your ownership. These can include extensions and many other general improvements. Finally, if you occupy the building as a business owner, you can also claim depreciation for any fixtures or fittings. Again, you must use these as part of your business operations.

Maintain Your Records

It should go without saying that it’s vital that you maintain accurate records if you want to claim commercial tax deductions in Australia. However, a remarkable number of people don’t do this.

Document every expenditure that relates to the building. These include both the immediate and ongoing costs. Furthermore, you should add day-to-day expenditure to the list. Keep anything that relates to a financial transaction involving your building. These records can help you to claim more.

Use a Quantity Surveyor

Every commercial property investor should employ the services of a quantity surveyor. These professionals can help you to create depreciation schedules. A good schedule ensures you can claim as much as possible on your property.

A quantity surveyor will carry out regular inspections of your property. These help to determine what deductions you can make each year. They’re ideal for long-term planning as well. A good depreciation schedule will lay out how to claim deductions for the next 40 years.

Furthermore, quantity surveyors understand how to maximise your depreciation based on your timeline. You may only intend to invest in the property for a short period of time. That’s okay. A good surveyor will take this into account, just like they would for a long-term investment.

It’s likely your surveyor will recommend the diminishing value method if you’re a short-term investor. This assumes the value of your assets depreciates most during their early years. As a result, you can claim for more depreciation in the short-term.

Depreciation CalculatorLong-term investors may prefer the prime cost method. This assumes uniform depreciation over the lifetime of your assets. As a result, you claim the same amount each year, rather than the bulk in the early years.

Which method works best for you will depend on the time commitment you make to your commercial real estate investment. A good quantity surveyor can talk you through the different timelines.

Take Advantage of the First Year

Your first year of ownership is vital. It’s when you will set up the structure through which you will manage your commercial property for the years that follow. Getting things wrong during the first year makes things more difficult than they need to be later on.

However, you also need to take depreciation into account from the moment you invest in the property. This is where your quantity surveyor can help again. You may be able to depreciate some of your assets faster with a commercial property than you would a residential one. Your surveyor will point this out to you. As a result, you can make more upfront savings using depreciation, which means you have more cash to use during that difficult first year.

The Final Word

Maximising your depreciation from a commercial property isn’t easy, but you can do it. Use the services of a reputable quantity surveyor and don’t put anything off.

Remember that you can make claims for depreciation from the moment you invest in the property. Don’t lose money because you were slow on the uptake.

New Tax Deductions for Small Businesses

tax deductions for small businesses

Joe Hockey delivers early Xmas present to Fit-out Contractors

Joe Hockey delivers early Christmas present via tax deductions for small businesses.

Small businesses with a turnover of less than $2m can now claim an immediate tax deduction when purchasing plant and equipment valued under $20,000.

This new tax break will deliver an early Xmas present to fit-out contractors who specialise in restaurant and small office refurbishments.

I was expecting a tax break but was surprised by the quantum of the tax break. Depreciation Quote Schedule

I think $20,000 as an immediate tax deduction for individual items is a huge amount and an incredible incentive to bring that fit-out forward.

Fit-out contractors now believe in Santa Claus and he’s taken the form of Joe Hockey.

Washington Brown recently refurbished our office for a cost of $202,000 and were able to claim $35,000 in depreciation in the first year. If we’d carried out the same fit-out today our first year depreciation would’ve been over $123,000. That’s a HUGE difference.

Quantity Surveyors are experts in breaking down the overall construction cost into individual items and now has never been a more appropriate time to do this.

There are four main points to consider:

  1. Small businesses should ensure a detailed report of any fit-out costs be carried out.
  2. When acquiring any new asset, small businesses should try to keep the costs below $20,000.
  3. This generous bonus has an expiry date of June 30, 2017.
  4. Assets costing over $20,000 can still be depreciated but not claimed as an outright deduction.

Some examples of what may qualify for an immediate tax deduction include carpet, desks, blinds, work stations and a lighting upgrade.

Now has never been a better time to upgrade that office or refurbish your restaurant.