Commercial property owners can indeed claim depreciation on fit-outs, which can significantly reduce taxable income. Under Division 40 of the ITAA 1997, you can claim depreciation on plant and equipment such as air conditioning units, carpets, and light fittings. Division 43 covers capital works deductions for structural improvements, including walls and ceilings.
How Depreciation on Commercial Fit-Outs Works
Under Division 40, plant and equipment are considered depreciating assets and can be claimed over their effective life. Division 43 allows for capital works deductions on structural elements of the fit-out, typically at a rate of 2.5% per annum over 40 years. The most common misconception is that only new fit-outs qualify, but this isn't the case. Even second-hand assets can be depreciated, provided they are used in a business context.
How This Works in Practice
Consider a Sydney-based café owner who has recently completed a $300,000 fit-out in a leased commercial space. This fit-out includes $100,000 in plant and equipment (e.g., kitchen appliances, furniture) and $200,000 in capital works (e.g., partition walls, plumbing). Under Division 40, the plant and equipment might depreciate over 5–10 years, giving an annual deduction of approximately $10,000–$20,000. The capital works under Division 43 would allow a deduction of $5,000 per year. Assuming a 30% corporate tax rate, this results in a tax saving of approximately $4,500 annually.
Professional Insight
In our experience, many business owners overlook the benefits of a detailed depreciation schedule, which can uncover substantial tax savings. One thing we frequently see is owners underestimating the value of smaller items like signage and shelving, which can add up. What most investors don't realize is that even leased premises can be claimed if you are responsible for the fit-out costs. Another common oversight is neglecting to update schedules after refurbishments, missing out on potential deductions.
When Does the Answer Change?
The ability to claim depreciation can change based on several factors:
When Should You Seek Professional Advice?
It's crucial to seek professional advice when dealing with complex depreciation claims. Individual circumstances can significantly alter the outcome, especially when it comes to ownership structures and lease agreements. A Chartered Quantity Surveyor can provide a precise depreciation schedule, while an accountant can integrate this into your tax strategy.