Do I need to pay anything to claim tenant abandonment depreciation?

No. The deduction is based on assets you have inherited at no cost. You claim depreciation on their assessed market value, not on a purchase price.

Can I claim abandonment depreciation immediately or over time?

Assets in the Division 40 schedule are depreciated over their effective lives — not immediately (unless they are under $300 or are pooled under the low value pool rules). There is no immediate full write-off simply because they were abandoned.

What happens to the tenant's depreciation claim?

When the tenant abandons their fit-out, they lose the use of those assets. They may be able to claim a balancing adjustment (scrapping deduction) for the remaining depreciation value in their own tax return.

What is tenant abandonment depreciation?

Tenant abandonment depreciation in commercial property

Tenant abandonment depreciation is the term used in property and quantity surveying to describe the situation where a departing commercial tenant leaves their fit-out in situ, and the landlord inherits those assets and claims depreciation on them.

Why it happens

Commercial tenants invest significant amounts in fitting out their leased premises. Depending on the lease terms, their business circumstances, and the condition of the fit-out, tenants sometimes choose to leave their improvements behind rather than strip them out. This is most common when:

The lease requires make-good but the tenant chooses to pay cash instead
The cost of stripping the fit-out exceeds its value
The landlord and tenant negotiate a handover of the fit-out as part of the lease exit
The tenant abandons the premises without following lease exit procedures

What the landlord inherits

Typical assets left behind include:

Partition walls and internal fit-out
Carpeting and floor coverings
Suspended ceilings and lighting
Kitchen or bathroom facilities
Data cabling and communications infrastructure
Joinery, shelving, and built-in furniture

How depreciation is claimed

Once the landlord takes ownership of the abandoned fit-out, those assets become part of the landlord's tax depreciation schedule. A quantity surveyor can:

Inspect and inventory all abandoned assets

Assess the current market value of each asset

Assign the correct ATO effective life

Prepare a Division 40 depreciation schedule

Commercial landlords can claim Division 40 on second-hand commercial fit-out (unlike residential property, which has restrictions under the 2017 rule).

Interaction with renovation plans

If the landlord plans to strip and refurbish the premises after the tenant vacates:

The abandoned assets can be scrapped (written off) when they are removed
A scrapping deduction for the remaining depreciation value applies
The replacement fit-out enters the depreciation schedule as new construction

A quantity surveyor can help maximise both the abandonment depreciation claim and the scrapping deduction if removal follows soon after.

Documentation matters

The key evidence needed:

Photos documenting the condition and presence of the fit-out at tenant exit
A statutory declaration or lease exit documentation confirming the handover date
A quantity surveyor assessment confirming asset values

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