Depreciation deductions are available for commercial property owners and tenants on the wear and tear of the building (Division 43 Capital Works) and its fixtures and fittings (Division 40 Plant & Equipment) over time.
There are three different scenarios of ownership for accommodation providers, each one will differ in the deductions available based on the assets that are owned.
A tax depreciation schedule is a professional report prepared by a suitably qualified Quantity Surveyor which shows the amount of depreciation able to be claimed in the property over the life of the building. Tax Depreciation schedules should last 40 years and include both the diminishing value method (which includes 100% deductions and pooling) and the prime cost method.
The report will identify each year, from the date of purchase, the total tax depreciation claim available to the property investor.
The three scenarios are as follows
In this scenario the land and buildings are owned by the passive investor (Landlord). The leasehold operator, generally, is responsible for all assets related to the business and covers all property expenses. The landlord receives rent from the lease holder.
Freehold (going concern)
In this scenario one party is both owner of the land and buildings and everything therein and operator of the business.
The lease holder conducts the day-to-day management of the accommodation business. They are responsible for all operating costs and while lease documents vary, generally the leasehold operator takes ownership of the chattels used to run the business.
For the owners of a Freehold (going concern) motel we see great tax depreciation deductions based on the high concentration of plant and equipment items as part of the total construction cost. Tax deductions are based both on the Division 43 Capital Works and Division 40 Plant & Equipment items. These plant and equipment items have accelerated rates of depreciation based on their constant use. Construction costs vary from 1550 per sqm for standard motels to 2900 per sqm for high end motels.
Leasehold operators will see significant deductions in early years as the majority of assets owned are plant & equipment items. As previously mentioned, these items have accelerated depreciation rates due to their frequent use. It is common to see deductions in the tens of thousands of dollars in early years.
Typically, motels will contain the following plant and equipment assets;
· Window Blinds & Curtains
· Air Conditioning Systems
· Lighting Systems
· Hot Water Systems
· Bathroom Assets
· Guestroom Furniture
· Bar Refrigerators
· Microwave Ovens
· Kitchen Assets – Cooking Utensils, Crockery & Cutlery
· Housekeep Assets
· Washing Machines & Clothes Dryers
· Swimming Pool Cleaning & Filtration Equipment
A Quantity Surveyor should be able to answer all of your detailed questions and will ensure that no items are missed, the maximum claim is made and that the report complies with the ever changing rules prescribed by the Australian Taxation Office (ATO).
We service Sydney, Newcastle, Parramatta, Melbourne, Brisbane, Adelaide, Perth & Regional Australia.