Investors often steer away from commercial investments because there is this perception that they are super expensive… But just like residential investments, there are plenty of tax deductions available to make owning a commercial property far more affordable. Hey everyone, Kim Quach from Duo Tax, here for another video designed to help you become a better property investor. We all know that residential properties offer a wide range of tax deductions. And if you didn’t know, you should check out these 17 deductions to avoid missing out on anything you should be claiming on your tax return. Unfortunately, most commercial investors or people looking into commercial investment spaces like this one don’t know about the number of ATO tax breaks and commonly miss out on claiming tax deductions that they’re entitled to.
So, if you’re currently shopping around in the commercial property market or you’re already an investor, these deductions are a great way to make some BIG savings, so stay tuned. Before we get into it, we want to be clear that this video is for informational purposes. In no way should you interpret this as tax advice. We always recommend working with a qualified accountant or tax agent to give you the best advice for your situation. Okay, so the first category of expenses is maintenance and management costs. According to Australian tax legislation, if you’re a commercial property owner, you can claim tax deductions for a whole bunch of expenses related to managing and maintaining the property while it’s available for rent or while it’s being rented out.
When it comes to managing your property, you’ll be paying for things like interest on your loan repayments, council rates, and leasing agent fees. You can claim an immediate deduction for all of these expenses. In terms of maintenance, you’ll probably have to fix a leak here and there or repair an air conditioner or smoke alarm. As long as the expense specifically relates to maintaining the property, those expenses are ALSO tax-deductible. The other significant tax deduction you can claim is depreciation.
All investors should be claiming depreciation on their properties because it really can make a major difference in your tax savings. As a building and its contained assets age, they depreciate in value. Australian tax legislation allows owners of investment properties to claim a tax deduction for this wear and tear called depreciation. And with commercial property, depreciation claims aren’t only limited to owners… Tenants can claim depreciation as a tax deduction if the property is used to produce income. Owners can claim under two different categories, capital works, also known as division 43 and plant and equipment or division 40. Capital works is the depreciation of the structure of the building and any fixed assets. It’s calculated differently depending on the type of commercial property and when it was built. For example, with hotels, motels and guest houses, owners can claim a depreciation rate of four per cent per year… Unless it was built between 16 September 1987 and 26 February 1992… Then the depreciation rate is two point five per cent per year.
On the other hand, if an office space was built after 16 September 1987, then the depreciation rate is two point five per cent each year. If you want to take note of all the ATOs key dates for depreciation claims, make sure to check out our YouTube video where I breakdown how you can work out your eligibility to claim. Another thing you should know about when it comes to capital works is that it’s ONLY available to commercial property owners, not tenants. So depending on whether you’re the landlord or the tenant, you need to bear this in mind. Now moving onto plant and equipment assets. These are fixtures and fittings that are found within the building.
These are generally known as easily removable assets and span across light fittings and carpets to commercial pieces of machinery such as conveyor belts. Each of these assets has its own effective life, and they depreciate according to the ATO’s assessment. Owners can claim any division 40 assets they own within their property, and tenants can claim depreciation for any assets that they purchase and install during a fit-out. A fit-out is where tenants add assets to the commercial space once their lease commences and throughout its duration. Tenants who undertake renovations to the commercial buildings can ALSO claim deductions for the construction costs. If you’re currently leasing office space and want to find out more about what you can claim during fit-out, we’ve put together a video that breaks down a bunch of assets that could potentially have you saving thousands of dollars in tax… So make sure to check it out.
Depreciation is probably one of the biggest expenses you can claim on this list. And the best way to do so is to get your hands on a depreciation schedule. Here at Duo Tax, this is kind of our thing, so if you want to find out more, make sure to drop a comment below. One more tool that can increase your tax savings is a Scrap Value Report. Sometimes if a tenant vacates the property and doesn’t remove the fit-out that they installed during the duration of their lease, you can actually continue claiming the remaining depreciation for the items. Or, if you need to get rid of the asset, instead of just paying the fees to have a company remove the fit-out, you can immediately write off the fit-out as a loss. That’s where the Scrap Value Report comes in handy. So there you have it, guys… commercial property tax deductions that can make a MASSIVE difference to your bottom line and is one of the top ways you can reduce your tax liability.
So make sure to take advantage of ALL of them by getting your hands on a tax depreciation schedule. And if you know a friend, colleague or family member who needs to hear this, please make sure you share this video with them. That’s it from me! I’m Kim Quach from Duo Tax, see you next time!
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