The 2023 festive season is upon us and this means an increase in the wear and tear of infrastructure and assets in shopping centers and retail spaces over this peak period. Along with the increased traffic through the parking lots, leisure areas, restrooms and retail stores, will come ongoing repairs and maintenance that will incur extra costs. But this does not have to mean a loss in cash flow for investors, in fact it could mean the opposite.

Under Division 43 of the ITAA 1997, legislation allows the owners of income-producing properties, including commercial retail spaces, to claim capital works deductions, which refers to the wear and tear on a building’s structure. This included items deemed to be permanently fixed to the property or building, such as bricks, floor tiles, staircases, and walls. The owner of a commercial investment property in which construction commenced after 20 July 1982 can claim these deductions. 

Under Division 40, legislation also allows for depreciation to be claimed on plant and equipment assets, which refers to all removable assets including, but not limited to furniture, carpets, décor, mechanical equipment and various other assets that can be removed from the building. 

Depreciation deductions for these assets are calculated based on each item’s individual, effective life, and even the industry, as set out by the Australian Taxation Office (ATO). 

To ensure that you maximise your tax return on the back of the peak season repairs and maintenance, we suggest that commercial investors:

• Keep a record of everything, 
• Calculate and claim scrapping, 
• Complete a depreciation schedule, 
• Call in the experts  

Keep a record of everything.

During the peak season, the wear and tear on items like carpets, furniture electronic appliances and various other plant and equipment assets will often mean that they have to be replaced during the holidays or soon thereafter. The purchasing of these new assets can be claimed under division 40 of plant and equipment depreciation. 

Though it’s the busiest time of the year, make sure that you keep a meticulous record of all repairs, maintenance and replacements bought for removeable plant and equipment assets during this season. There is no item too small to consider including in a schedule. Low-cost assets and low-value assets all add up to maximise depreciation benefits and if an asset has sufficiently low value, legislation allows for it to be written off much faster or even claimed in full, increasing deductions and freeing up welcome cash flow.

If any repairs must be done to fixed infrastructure, like a fallen wall, these deductions can be claimed under capital works. Infrastructure like air conditioners regularly need repairs and maintenance, but depreciation deductions for parts of these assets fall under varying divisions and should be done by a team of experts to ensure optimal and accurate tax returns.

Calculate and claim scrapping

Old fixtures and appliances that are removed and disposed of can instantly be deducted and claimed for. This scrapping value is essentially the un-claimed or un-deducted depreciable value of an asset. An expert will prepare a depreciation schedule before the scrapping event and again after the assets are disposed of, to allow the calculation of all the deductions available now and into the future with the new assets.

Complete a depreciation schedule

A tax depreciation schedule outlines the capital works and plant and equipment depreciation deductions available on a property for the purpose of ensuring that you have the lowest taxable income possible. A BMT Tax Depreciation Schedule covers all deductions available over the lifetime of a property. Claiming depreciation is considered a non-cash deduction, meaning commercial property investors don’t need to spend any money in order to claim it. The small cost for the preparation of the schedule itself, is also tax deductible.

Call in an expert

Certain assets like air conditioners can cause confusion because some parts qualify for plant and equipment depreciation under Division 40, while other parts qualify for capital works deductions under Division 43. We therefore suggest you call in the experts. 

Quantity surveyors, like BMT Tax Depreciation, are recognised as experts who are qualified to assess a property and calculate construction costs for the purpose of providing a comprehensive depreciation schedule which outlines depreciation deductions accurately. A tax depreciation schedule can also be used as evidence, should the ATO complete an audit of a commercial property investor’s claim.

To learn more about preparing for the new financial year with depreciation call BMT on 1300 728 726 or Request a Quote.

The information in this article is general in nature and shouldn’t be taken as a quote or a guaranteed outcome.  

Related Reading:

New government incentives introduced - BMT

Lucrative deductions inside childcare centres - BMT