Understanding whether you can claim depreciation on a serviced office involves knowing the nuances of the Australian tax code, specifically the distinctions between plant and equipment and capital works. In a serviced office setup, you can claim depreciation on assets you own, but not on those provided by the office provider.
Under Division 40 of the ITAA 1997, business owners can claim depreciation on plant and equipment they purchase and install in a serviced office. This includes items like office furniture, computers, and other equipment. However, the depreciation claim does not extend to assets owned by the serviced office provider.
Capital works, covered under Division 43, refer to structural improvements or alterations you might make to the office space. These can be claimed if you have made such investments, but again, only on the portions you own or leasehold improvements you've funded.
A common misconception is that all fixtures and fittings in a serviced office are claimable. This is not the case; you can only claim depreciation on assets you own. To see how this plays out, consider this practical example:
Take a practical example of a small business owner leasing a serviced office in Melbourne CBD. Suppose they spend $10,000 on ergonomic furniture and high-end computer systems. Under Division 40, these assets can be depreciated over their effective life. If the furniture has an effective life of 10 years, and the computers 3 years, the first-year depreciation could total approximately $3,333. At a 30% corporate tax rate, this results in a tax saving of $1,000 in the first year alone.
In our experience reviewing thousands of properties across Australia, business owners often overlook the depreciation potential of assets they bring into serviced offices. Many assume that because they are leasing, they cannot claim any depreciation, missing out on potential tax savings. Additionally, failing to properly document the purchase and installation of these assets can lead to missed claims.
The answer can differ depending on your situation. For instance, if you've entered into a lease agreement that requires you to make specific improvements to the leased space, those improvements might qualify under Division 43. If you are an owner-occupier of a serviced office space, the scope for claiming expands significantly, including both plant and equipment and capital works.
When it comes to claiming depreciation on a serviced office, the specifics can depend heavily on the individual circumstances of your business and the lease agreements in place. A Chartered Quantity Surveyor can provide a detailed depreciation schedule tailored to your situation, ensuring no potential claims are overlooked. Additionally, consulting with your accountant will ensure that these claims are optimally integrated into your broader tax strategy.
To maximise your depreciation claims: