Depreciation on strata commercial properties is a valuable tax deduction available to investors. Under Division 40 of the ITAA 1997, you can claim depreciation on plant and equipment, while Division 43 covers capital works deductions. This means you can reduce your taxable income by claiming the decline in value of both the building structure and the assets within it.
One common misconception is that strata properties are limited in depreciation claims due to shared ownership structures. However, the reality is that these properties often have extensive common areas and shared facilities, which can significantly increase the depreciation deductions available. The key is to understand how these deductions work and ensure you are claiming everything you're entitled to.
To see how this plays out, consider a 2015-built office unit in a strata complex in Melbourne's CBD, purchased for $800,000. In the first year, you might claim $10,000 in Division 43 capital works deductions and $5,000 in Division 40 plant and equipment depreciation. At a 37% marginal tax rate, this reduces your tax bill by $5,550 in year one.
In our experience reviewing thousands of properties across Australia, investors frequently overlook the potential depreciation in common areas such as lifts, foyers, and parking facilities. Many also miss out on claiming newly installed assets post-purchase, like security systems or HVAC upgrades. Engaging a professional Quantity Surveyor ensures that all possible deductions are captured, maximising your tax savings.
The answer can differ depending on your situation. Post-9 May 2017 changes primarily affect residential properties, but commercial properties remain fully eligible for depreciation on second-hand assets. If you own a property through an SMSF, different rules can apply. Additionally, the age of the building affects your Division 43 eligibility — properties built before 1987 are generally not eligible for capital works deductions unless significant renovations have occurred.
Given the complexity of tax laws and the potential for significant tax savings, consulting both a Chartered Quantity Surveyor and an accountant is crucial. They can provide a tailored depreciation schedule that suits your specific property and financial situation.