Are you depreciating commercial fitouts correctly? | Tax & Property Depreciation Schedule

Something you didn't know about depreciation

Are you depreciating commercial fitouts correctly?

Chances are you’re not.

Some of them even we find tricky, and we have been doing Depreciation Schedules for over 20 years.

If you aren’t doing it properly, your clients might be missing out on deductions.

Sure, if it’s just a small factory and the client has just installed a mezzanine and some racking, that’s easy.

But what if it’s, say, a $900K office fitout that involved some demolition and there is a landlord contribution in the mix and the landlord also wants a Depreciation Schedule. That’s a job that just came in today for us.

Key Points:

  • How we approach a Depreciation Schedule for a fitout for one of your clients.
  • If your client has bought a building with an existing fitout and decides to demolish that fitout, they should be able to claim the disposal value of any Capital Works they discard.
  • When the landlord makes a contribution to the fitout, it makes sense to ascribe as much of the Capital Works as possible to the landlord.

A woman smiling at her client as they work on a project. Depreciator will work with your client to understand the total spent on the fitout and what the landlord owns of that fitout to create a Depreciation Schedule.How do we approach a depreciation schedule for a fitout?

Here’s what we do:

  1. First up we find out the total spend on the fitout and get whatever breakdown is available for the Capital Works and Plant and Equipment.
  2.  Then we get a contact at the fitout company to help us break down the P&E further.
  3. Next we ask whether there was a landlord contribution and whether there were any conditions around it (and whether the landlord also expects a Depreciation Schedule).
  4. And of course we find out whether we are including GST in the costs and whether one or both entities want the Instant Asset Write-Off employed.
  5. Then we send a Quantity Surveyor there.

That’s what it takes to do them properly, so isn’t it good that you don’t need to do all that? All you have to do is refer your client to us using your link and we take over.

Let’s look at some other fitout conundrums:

What if your client has bought a building with an existing fitout?

This one happens all the time with offices and shops.

Your client might not be intending to occupy the property, but they will want to make the most of any deductions available.

If there is a tenant there and they did the fitout, they would be claiming it. But what if the landlord made a contribution to that fitout? Nobody ever thinks to dive that deep.

What if it’s vacant possession and the fitout was left behind by the tenant? Your client bought that fitout when they bought the building and should be able to depreciate it.

But what if your client decides to demolish that fitout so they can present prospective new tenants with an empty shell? They should be able to claim the disposal value of any Capital Works they discard. There is often good money thrown into skip bins without anybody realising.

We always tell clients to talk to their accountants before they do anything to a property. And you in turn might want to talk to us.

An office space with an industrial feel. Lage pendant lights hang from the ceiling in front of a green wall. If a fitout has a landlord contribution, chances are the landlord will also need a Depreciation Schedule.How best to deal with a landlord contribution?

Just about every fitout Depreciation Schedule we have done in the last year for office in the capital cities has had a large landlord contribution in the mix. Presumably it’s what landlords need to do to entice businesses into leases after Covid. Prospective tenants right now are spoilt for choice.

And in every case, those landlords have expected the client to provide them with a Depreciation Schedule as a condition of handing over the money.

It’s always best we know this up front. With the fitout job that came in today, of that $900K total, the landlord generously (but probably with little choice) chipped in $300K.

It makes sense to ascribe as much of the Capital Works as possible to the landlord. That’s the walls, glass partitions, fixed floor treatments, ducting etc. Then the client gets to claim the majority of the Plant and Equipment i.e. the stuff that depreciates quickly. It often surprises us that when landlords hand of significant incentives, they don’t stipulate what work it is to be put against.

News on the Instant Asset Write-Off

There is no news on the Instant Asset Write-Off.

It’s still stuck in the Senate.

And that does not indicate the Senate are pondering deeply where the latest threshold for the Instant Asset Write-Off should be. It’s because the Senate is yet to pass the Support for Small Business and Charities Bill and the Instant Asset Write-Off is in there.

It is anticipated that the ever shifting threshold will be back at $20,000 for Assets first used or installed ready for use between 1 July 2023 and 30 June 2024.

Questions about depreciation? Email Depreciator, the depreciation specialists, for the answer.If you have a client we can help with claiming depreciation for a commercial or a residential property, please use your booking link, or make an online enquiry.

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