Maximise your property tax deductions

Date: July 07, 2008

THE following information could save you thousands of dollars.

With tax time upon us, Commercial Property has spoken to tax experts about what property owners can claim as tax breaks.

Many commercial property owners are shooting themselves in the foot by not maximising their allowable deductions.

The Australian Taxation Office certainly isn't going to tell those people they are robbing themselves.

TOP TIP: Under the capital allowance deduction, or depreciation as it's commonly known, commercial property investors can claim 2.5% of the building construction cost (not the value) each year while factory owners can claim 4% per annum of the construction cost.

Throw plant and equipment into the equation and they can claim 6-12% (depending on the number of depreciable items available).

The capital allowance refers to the actual construction costs of the building while plant and equipment refers to depreciable items, such as carpets, blinds, curtains, air-conditioning, ventilation systems and fire alarms systems.

"It (depreciation) isn't something the Tax Office goes around advertising," Australian Tax Depreciation Services director Yenktesh Reddy said.

Mr Reddy said a tenant could also claim the depreciation on the capital works and plant and equipment used to fit out a business.

He said the deduction could be a lot higher if the person who owned the building also ran the business.

"You get all the benefits of owning the building while any capital works and plant and equipment installed to run the business will have depreciation applicable to it as well," he said.

WARNING: Don't double dip.

Mr Reddy said a lot of landlords wrongly tried to claim the fit-out of a property as part of the ownership where they leased the property to an external party who carried out their own fit-out.

Mr Reddy said another point to note was that the depreciation rates applicable to commercial properties was much higher than those residential properties because the effective lives of the associated plant and equipment was lower.

For example, he said, carpet installed in a residential property had a depreciable rate of 20% whereas in a commercial office the rate could be as high as 25%-40% (depending on the period of the lease and make-good clauses).