Are you considering purchasing your own commercial space? If so, capturing and claiming depreciation deductions should be high on your ‘to do’ list.
Commercial investment property owners can save thousands of dollars each year by claiming depreciation deductions for the wear and tear of building structures and fittings. Depreciation deductions often mean the difference between a negatively geared investment property and an investment property with positive cash flow.
Commercial owner/occupiers can also benefit from the cash injection that results from maximising tax depreciation deductions. Here’s how?
Structure ownership to your advantage
By purchasing a commercial property via a self-managed superannuation fund or trust, you can effectively increase your deductions by claiming the building in one entity, and the tenancy assets in another if you’re operating your business from the same premises. As a commercial property owner/investor you can claim the depreciation of capital works (the actual building) as well as some plant and equipment items (fittings and fixtures). As a commercial property occupier/tenant you can also claim tax deductions for the depreciation of fittings and fixtures you’ve installed as part of your business.
Engage an expert
All property investors should have a Quantity Surveyor as part of their team. Quantity Surveyors are experts in tax depreciation deductions. A Quantity Surveyor will inspect and assess your property and prepare a tax depreciation schedule that will maximize the depreciation deductions you can claim against your taxable income each year. A tax depreciation schedule spells out all deductions claimable for up to 40 years, so it’s a great tool for financial planning and ongoing profitability.
Keep accurate records
Meticulous documentation of running costs, upfront costs and day-to-day expenses will be key to ensuring all claimable deductions are captured. You’ll need to keep detailed records of expenditure, assets and financial transactions relating to both the commercial investment property and your business.
Use the best depreciation method for your timeline
Your Quantity Surveyor will advise the best depreciation method for your commercial investment property – based on your timeline. Without going into too much detail, the ‘diminishing value’ method is better for a shorter-term investment, while the ‘prime cost’ method is suited to longer terms of ownership. Both methods can save you money and your Quantity Surveyor will know which is best for your situation.
Get the most out of ‘Year One”
The biggest depreciation deductions are often captured in the first year. A commercial property investment can depreciate certain items at a higher initial rate than a residential property and there are several tools your Quantity Surveyor can use to maximise the up-front savings you can achieve via depreciation.
If you’re considering purchasing your own commercial space be sure to speak to a qualified Quantity Surveyor as part of your planning.