The key elements of claiming commercial tax depreciation

When people think about property investment, generally they think buying houses to rent out.



This is the most common kind and many people have generated wealth through carefully selecting high-yield properties and well-vetted tenants. Commercial depreciation differs in many ways to residential depreciation.

This means that there are different rules and regulations around how you can operate a commercial property and claim depreciation. Below are a few of the main considerations you must take into account when tax time rolls around.

Depreciation can be claimed when you are using the property

 Commercial property depreciation can be claimed when your business occupies the premises. This is because the ATO doesn’t consider a commercial property to be a main residence and you are effectively renting the space to your business. This enables you to claim the maximum allowable deductions, without crossing any legal lines.

Even old buildings can depreciate

The age of a building determines the capital works depreciation you can claim. You are entitled to a deduction if construction commenced way back in 1982 and the rate varies for certain time frames. From 20 July 1982 to 21 August 1984 the rate is 2.5% of the construction cost, from 22 August 1984 to 15 September 1987 the rate is 4%, and from 16 September onwards the depreciation rate is 2.5%.

Effective lives and industry classifications

The effective life of a plant and equipment asset differs when used commercially. The ATO has determined specific industry classifications, making it easy for business owners to see what assets can be claimed, and at what rate. For example, a retail store owner can claim for items specifically used in the running of a retail business, restaurateurs can claim for equipment used in the running of a restaurant etc. The effective lives of assets, when used commercially, is generally lower than the same asset used in a residential property, and your tax depreciation schedule will need to take this into account.

Other factors to consider when claiming a commercial depreciation allowance

The size and quality of a building is another consideration when determining depreciation allowances. A building that has a better build quality will attract a better rate of depreciation. This is also true of taller bui8lding, where fixtures such as lifts and fire safety elements, make the building higher value.

When the actual construction costs of a building cannot be determined, a quantity surveyor is required to make an assessment and provide an estimation. This makes it important to retain all building documentation, invoices, and everything that provide a clue as to the construction costs and lead to a better idea of the actual value of the building.

The final decision

If you choose to invest in property, it is important to do your homework to discover whether you will receive better returns on a commercial or residential property. There are calculators available that will allow you to compare the benefits of the two approaches, and you can contact depreciation specialists to help you make your decision.