Depreciating a carpark as part of your commercial property portfolio is a viable way to reduce your taxable income in Australia. Under Division 43 of the ITAA 1997, depreciation on capital works includes structural elements of the carpark such as the concrete surface, fencing, and lighting. The critical factor is that the carpark must be used in the course of producing assessable income, making it essential to understand how and when you can claim these deductions.
Many investors mistakenly believe they cannot claim depreciation on a carpark because it doesn't fit the typical mould of a 'building'. However, the ATO recognises carparks as legitimate claims under capital works, provided they are associated with an income-generating property. The capital works deduction rate is generally 2.5% per annum over 40 years, applicable to construction costs.
To see how this plays out in practice, consider a commercial property owner in Melbourne who built a standalone carpark for their office tenants in 2015. The construction cost of the carpark was $300,000. Under Division 43, they can claim 2.5% per annum, equating to $7,500 annually. If they are on a 30% marginal tax rate, this reduces their tax payable by $2,250 each year.
In our experience reviewing thousands of properties across Australia, one common oversight is failing to include carparks in depreciation schedules. Many investors focus on the building itself and overlook these valuable assets. Another frequent issue is not updating the schedule when improvements are made to the carpark, such as resurfacing or adding security features, which can also be depreciated.
The answer can differ depending on your situation. For instance, if your carpark is part of a second-hand property acquired after 9 May 2017, you may face restrictions on claiming Division 40 deductions for plant and equipment. However, Division 43 claims remain unaffected. Also, if the carpark was constructed before 1985, it might not qualify unless significant upgrades have been made post-1985.
When it comes to maximising depreciation claims, consulting with a Chartered Quantity Surveyor is crucial. They can ensure that every eligible component of your carpark is included in your depreciation schedule, while an accountant can provide guidance on how these deductions impact your overall tax position.