Commercial Property

Published 5 August 2026 · Last updated 16 August 2026

Commercial property depreciation operates under materially more generous rules than residential — and is claimed far less completely, because the entitlements are split across more parties and asset classes. The owner claims the building structure; tenants claim the fit-outs they pay for; and the 2017 second-hand asset restrictions that limit residential investors simply do not apply to commercial property. Buyers of established commercial buildings can still depreciate the existing plant and equipment they acquire.

The structural claim runs under Division 43 at 2.5% or, for certain post-1985 industrial and manufacturing buildings, 4% per year of eligible construction expenditure. On commercial construction costs, that is rarely a small number. Layered on top is Division 40 plant and equipment — lifts, HVAC, fire systems, security — where commercial effective lives and asset values dwarf their residential equivalents.

Fit-out is where the biggest money is missed. A tenant who spends on their own fit-out owns those assets for tax purposes and claims the depreciation — many never do. When a lease ends and the tenant walks away, abandoned fit-out can in some cases be written off by whoever bears the loss, and make-good obligations carry their own tax treatment. Lease incentives, landlord contributions and base-building versus fit-out boundaries all shift who claims what, which is why commercial schedules are built around the lease as much as the building.

Why the entitlements go unclaimed

The recurring pattern is split ownership of the depreciation picture: the landlord holds the construction cost history, the tenant holds the fit-out invoices, and neither holds a schedule that separates base building from tenant assets. A commercial depreciation schedule resolves the boundary — and for portfolios, an asset register keeps every subsequent addition, disposal and make-good event claimable. The guides below cover the rules, the fit-out questions, lease scenarios, and the specifics for each building type from warehouses to data centres.

Who this guide is for

Commercial property owners and landlords, business tenants who have paid for fit-outs, property trusts and companies holding commercial assets, and the accountants advising all three. Residential investors should start with the Tax Depreciation category — the rules differ in important ways.

Key concepts

No second-hand restrictions

The post-9-May-2017 limits on used plant and equipment apply only to residential property. Commercial buyers claim depreciation on acquired assets regardless of prior use.

Base building vs fit-out

The owner’s structural claim and the tenant’s fit-out claim are separate entitlements. The boundary — services risers, ceilings, floor coverings — determines who claims each asset.

Tenant fit-out ownership

Whoever pays for and owns the fit-out claims its depreciation, even though it is installed in someone else’s building. Leasehold improvements can also generate Division 43 claims for tenants.

4% industrial rate

Certain industrial and manufacturing buildings qualify for capital works at 4% rather than 2.5% — halving the claim period. Classification depends on the building’s use.

Make-good and abandonment

End-of-lease events have tax consequences: abandoned fit-out may be written off, and make-good costs have their own treatment for both parties.

Common mistakes

Tenants paying for fit-outs and never claiming the depreciation — the single largest unclaimed entitlement in commercial property.
Assuming residential second-hand asset restrictions apply to commercial purchases (they do not).
No documented base-building/fit-out boundary, so landlord and tenant either double-claim or neither claims.
Missing the 4% capital works rate on qualifying industrial buildings and claiming only 2.5%.
Failing to write off abandoned tenant fit-out or scrapped assets at lease end.

Key legislation

Division 43 ITAA 1997 — capital works at 2.5%, or 4% for qualifying industrial/manufacturing buildings.

Division 40 ITAA 1997 — plant and equipment depreciation — commercial property is exempt from the residential second-hand asset restrictions.

Effective Life Determination 2025 — Income Tax Assessment (Effective Life of Depreciating Assets) Determination 2025 — current effective lives, including commercial and industry-specific assets (replaces the withdrawn TR 2022/1).

GST Act (margin scheme & Div 129) — GST interacts with commercial property cost, sale treatment and adjustments — coordinate depreciation records with GST positions.

Start with these guides

What is a Commercial Depreciation Schedule?

A commercial depreciation schedule outlines the tax deductions available for the decline in value of a property’s structure and assets. Division 40 covers plant and equipment, whil…

What is the Difference Between Residential and Commercial Depreciation?

Residential and commercial properties differ in depreciation rules under Australian tax law. Residential properties are subject to Division 40 and Division 43, with specific limita…

Can I Claim Depreciation on a Commercial Fit-Out?

Yes, you can claim depreciation on a commercial fit-out in Australia. Under Division 40 for plant and equipment and Division 43 for capital works, business owners can reduce taxabl…

Can I Claim Depreciation on a Commercial Building I Lease?

Yes, you can claim depreciation on a commercial building you lease in Australia. Under Division 40 and Division 43 of the ITAA 1997, lessees can claim depreciation on plant and equ…

Can You Claim an Office Fit-Out as an Immediate Deduction?

Office fit-outs may qualify for immediate deductions under the instant asset write-off provisions, subject to specific criteria. Eligibility depends on the cost of the fit-out and …

Commercial depreciation fundamentals

Fit-outs

Leases, tenants and end-of-lease events

Building types

Ownership structures, GST and CGT

When to get professional advice

Order a commercial depreciation schedule at purchase, at practical completion of any fit-out, and when a lease turns over — those are the events that create or move entitlements. Involve a quantity surveyor when the base-building/fit-out boundary is unclear, when acquiring a building with unknown construction history, or when a portfolio needs an asset register to track additions and disposals. GST, trust and company structuring questions belong with your accountant; our schedules are built to slot into whatever structure holds the asset.

Frequently asked questions

Can I claim depreciation on a second-hand commercial building?

Yes — both the remaining Division 43 capital works and the acquired plant and equipment. The 2017 second-hand restrictions apply only to residential property.

Who claims the fit-out — landlord or tenant?

Whoever paid for and owns it. Tenant-funded fit-out is the tenant’s claim; landlord contributions and incentives can shift the boundary, which is why the lease terms matter to the schedule.

What happens when a tenant leaves fit-out behind?

Abandoned fit-out may be written off by the party bearing the loss, and a landlord who takes ownership may have a new depreciable asset. The treatment depends on the lease and what actually happens at handover.

Does my building qualify for the 4% rate?

Only certain industrial and manufacturing uses qualify — warehouses used for storage alone generally do not. Classification is use-based and worth checking; the difference halves the claim period.

Is a schedule worth it on an older commercial building?

Usually — post-1982 structures retain Division 43 value, refurbishments and fit-outs reset entitlements, and acquired plant and equipment is claimable regardless of age. A QS assessment will tell you before you commit.

Tools and calculators

Tax Depreciation Calculator Construction Cost Calculator