What is Commercial Property Depreciation and How Can you Benefit as an Owner or Tenant?
A commercial investment property is one from which people operate as a business. It generates revenue for the owner through commercial tenant rents. Shopfronts, warehouses, hospitality venues, office premises, industrial buildings, child and aged care centres, medical and dental practices, and retail shopping centres are all examples of commercial property.
What is the definition of commercial property depreciation?
For commercial building owners, a building is a depreciating asset. Depreciation refers to the deterioration and wear and tear of a building and its assets over time. Although the value of a commercial building may rise (or fall) over time, from an ATO and accounting standpoint, as the building ages and assets wear out, they lose a percentage of their worth each year. This annual decrease in value is known as capital allowance and depreciation, and it can be claimed as a tax deduction by the property owner when filing their tax returns each financial year.
Owners of income-producing properties can claim this depreciation as a tax deduction from the Australian Taxation Office. Whether the property is new or old, there are likely to be significant depreciation discounts available. As a result, it's important to consult with a professional about your specific circumstance.
Who is eligible to claim depreciation on commercial property?
The property owner
Depreciation can be claimed by the property owner for capital works that they have paid for. These works often include the original structure, structural/built expansions, and can include works completed over time such as newly constructed or upgraded bathrooms, kitchens, outdoor areas, and so on.
Depreciation on any plant and equipment assets purchased and included in the lease agreement is also claimable.
The tenant
Tenants are more likely to claim for building fit-out if they paid for it, as well as machinery, furniture, and electrical assets owned as part of their business.
A cafe/restaurant owner, for example, is likely to claim depreciation for the internal fit-out, fridges, bar and counter, tables, chairs, other stylistic assets.
Over the years BMT Tax Depreciation has successfully prepared Depreciation Schedules for many of our clients. You can learn about BMT Tax Depreciation here.