Can I claim a fit-out on a leased property?

Yes, you can claim deductions for fit-outs on leased properties under Division 40 and Division 43, provided the costs are capitalised and properly depreciated.

What happens if the fit-out is removed before the lease ends?

If a fit-out is removed, you may be entitled to claim an immediate deduction for the undepreciated value, known as a 'balancing adjustment'.

Are there state-specific variations for fit-out deductions?

While the federal tax rules apply uniformly, some state-based incentives or grants may impact the overall cost of your fit-out.

How do I report fit-out deductions in my tax return?

Deductions for fit-outs are reported in the 'Depreciation and Capital Allowances Tool' section of your business tax return.

Can I claim a deduction for a fit-out in a residential property used for business?

Yes, but only for the portion of the property used for business purposes. You'll need to apportion costs accordingly.

Can You Claim a Retail Tenancy Fit-Out as a Tax Deduction?

Retail tenancy fit-outs can represent a significant investment for business owners, but they also offer substantial tax deduction opportunities. Understanding how to claim these deductions correctly can reduce your taxable income and improve cash flow.

Claiming Deductions for Retail Tenancy Fit-Outs

Retail tenancy fit-outs are eligible for tax deductions under two main categories: Division 40 (plant and equipment) and Division 43 (capital works) of the Income Tax Assessment Act 1997. Division 40 covers depreciating assets such as lighting, air conditioning, and furniture. These items can be depreciated over their effective life as determined by the ATO. Division 43 applies to structural improvements like walls, floors, and ceilings, allowing deductions at a rate of 2.5% per annum over 40 years. The most common misconception is that all fit-out costs are immediately deductible, but they must be capitalised and depreciated over time.

How This Works in Practice

Consider a retail space in Melbourne where the business owner spends $150,000 on a fit-out. This includes $60,000 on plant and equipment and $90,000 on capital works. Under Division 40, the plant and equipment can be depreciated over their effective life, resulting in an approximate first-year deduction of $12,000. For Division 43, the capital works deduction would be $2,250 annually (2.5% of $90,000). At a 30% corporate tax rate, the total first-year tax saving is $4,275.

Professional Insight

In our experience, many business owners overlook the importance of a detailed depreciation schedule. One thing we frequently see is incorrect categorisation of items, which can lead to missed deductions. What most investors don't realise is that engaging a Chartered Quantity Surveyor can ensure every eligible item is captured and correctly classified. Additionally, fit-outs completed before leasing the property can still be deductible, provided they were intended for business use.

When Does the Answer Change?

Several scenarios can alter your ability to claim deductions:

Pre-1985 Buildings: If the building was constructed before 1985, Division 43 deductions may not apply, but Division 40 will still be relevant.

Lease Incentives: If the landlord contributes to the fit-out, you can only claim deductions on the portion you funded.

Mixed-Use Properties: If the property is partly used for non-business purposes, only the business-use portion is deductible.

Short-Term Leases: For leases under 12 months, the fit-out may not be considered a depreciating asset.

When Should You Seek Professional Advice?

Professional advice is crucial to ensure all deductions are claimed accurately and compliantly. A Chartered Quantity Surveyor can distinguish between Division 40 and Division 43 items and prepare a comprehensive depreciation schedule. An accountant can then integrate this with your overall tax strategy, considering factors like lease terms and ownership structures.

What to Do Next

Engage a Chartered Quantity Surveyor to assess your fit-out and prepare a depreciation schedule.

Review your lease agreement to understand any landlord contributions or incentives.

Consult with your accountant to integrate the depreciation schedule into your tax strategy.

Document all fit-out expenses with detailed invoices and receipts.

Assess the building's construction date to determine eligibility for Division 43 deductions.

Plan future fit-outs with tax deductions in mind, considering effective life and asset categories.

Written by Koste Team · Koste Chartered Quantity Surveyors · AIQS Member · RICS Member · TPB Registered · 1300 669 400 · info@koste.ai