Unsuspecting commercial property owners missing out on deductions

Commercial properties are often renovated to suit the needs of the business occupying them, however, many people are unaware that on removal, the owner of the asset can claim the remaining value as an immediate deduction in that same financial year. This is known as scrapping.

Scrapping occurs when removed assets and structural elements within a building have a remaining undeducted written down value. The opportunity to claim scrapping deductions is often overlooked, or completely unknown, resulting in property owners missing out on potentially tens of thousands of dollars in tax deductions.

These valuable deductions apply to:

• removable plant and equipment assets under Division 40 of the Income Tax Assessment Act (ITAA) 1997, and;
• fixed assets or structural capital works elements of a building under Division 43 of the ITAA 1997.

The deductions for structural or fixed assets are especially valuable when scrapping occurs. These assets are written off at a much lower rate over 40 years at 2.5% per year, often resulting in a substantial remaining undeducted value for the owner to claim in its entirety once removed.

Owners are able to claim deductions for the building structure, any plant and equipment assets they own, or fitouts they purchase and install.
Meanwhile, commercial tenants can also claim deductions for fitouts they own from the start of their lease or from the date of purchase and installation, often including assets such as desks, kitchens and carpet.

When a business undertakes a significant renovation or fitout, and they are uncertain of the value of assets being removed, they should consider engaging a quantity surveyor to conduct an assessment of the assets and prepare a tax depreciation schedule to ensure that they don’t miss out on any deductions they may be entitled to.

If you would like to know more about assets you may be able to claim depreciation on even after they are replaced please call us on 03 5443 0344.

This article was originally authored by BMT Tax Depreciation.