When investing in a petrol station, depreciation claims can significantly enhance your return on investment. Depreciation applies to both plant and equipment (Division 40 of ITAA 1997) and capital works (Division 43) on the property. Petrol stations, with their complex mix of assets, offer substantial depreciation opportunities.
Under Division 40, you can claim depreciation on plant and equipment such as fuel pumps, air compressors, and signage. These assets have specific effective lives as determined by the ATO. For instance, fuel pumps may have an effective life of around 10 years. Meanwhile, Division 43 allows you to claim deductions for structural improvements like the building itself and site developments, typically over 40 years.
Many investors mistakenly believe that all assets are depreciated at the same rate or overlook the capital works deduction entirely. This can result in missed tax benefits and reduced cash flow.
Take a practical example of a 2015-built petrol station in Geelong, purchased for $1.5 million. The plant and equipment on-site, including pumps and refrigeration units, might have a depreciable value of $300,000. Assuming an average depreciation rate, you could claim approximately $30,000 in the first year. For capital works, if the building structure is valued at $1 million, you could claim around $25,000 annually. At a 45% marginal tax rate, this could reduce your tax bill by $24,750 in the first year alone.
In our experience reviewing thousands of properties across Australia, many commercial property owners miss out on depreciation opportunities by failing to obtain a detailed depreciation schedule. They often underestimate the value of plant and equipment, or they don't account for all eligible structural improvements. Additionally, some overlook the benefits of pooling low-value assets, which can accelerate depreciation claims.
The answer can differ depending on your situation. If the petrol station was acquired before or after 9 May 2017, the treatment of second-hand plant and equipment may vary. Also, for properties owned by a company, the CGT discount doesn't apply, affecting overall tax strategy. For petrol stations built before 1987, specific rules on capital works deductions apply unless renovations or extensions have been made.
Navigating depreciation claims for a petrol station can be complex, especially when considering factors like asset effective life and recent legislative changes. Consulting with a Chartered Quantity Surveyor ensures you maximise your claims and comply with ATO requirements. Additionally, working alongside your accountant will help tailor the strategy to your broader tax situation.