Claiming depreciation on an industrial property is not only possible but can be highly beneficial for Australian investors. Depreciation allows you to deduct the decline in value of your property’s assets from your taxable income, potentially reducing your tax liability significantly.
Under Division 40 of ITAA 1997, plant and equipment items like machinery, air conditioning, and office fixtures can be depreciated. Division 43 covers capital works, including the building’s structure and fixed items. Many investors overlook the fact that industrial properties often have substantial plant and equipment, offering significant depreciation opportunities.
A common misconception is that only residential properties offer depreciation benefits. However, industrial properties often have higher-value equipment and infrastructure, potentially leading to larger deductions. It's crucial to understand the distinction between plant and equipment and capital works. Plant and equipment are generally removable items, while capital works refer to the building itself and integral structural components.
To see how this plays out, consider a practical example. Suppose you own a warehouse in Dandenong, Victoria, purchased for $1.2 million. The building structure, valued at $800,000, can be depreciated at a rate of 2.5% per annum under Division 43. This results in a $20,000 annual deduction. Additionally, plant and equipment valued at $200,000 may offer further deductions. If your marginal tax rate is 37%, your overall tax saving in the first year could be around $7,400.
In our experience reviewing thousands of properties across Australia, industrial property owners often miss out on claiming depreciation for all available assets. Items like specialised machinery and integrated technology systems are frequently overlooked. Additionally, many investors fail to update their depreciation schedules following renovations or upgrades, missing out on increased deductions. Engaging a Chartered Quantity Surveyor ensures that all depreciable assets are identified and valued accurately.
The answer can differ depending on your situation. If the property was built before 16 September 1987, Division 43 deductions for capital works may be unavailable. However, plant and equipment depreciation remains applicable. For properties acquired after 7:30pm AEST on 9 May 2017, the rules regarding second-hand plant and equipment do not apply to industrial properties as they do to residential properties. Ownership structure, such as through a superannuation fund, can also affect tax outcomes.
Given the complexity and potential for significant tax savings, professional advice is invaluable. A Chartered Quantity Surveyor can provide a detailed depreciation schedule, ensuring you claim all entitled deductions. Collaboration with your accountant will tailor these deductions to your specific financial situation.