What can be depreciated beyond a building?

We’re not talking here about the Depreciating Assets, or Plant and Equipment, but we’ll touch on them – we have covered these previously.

We want to focus this month on the ‘structural improvements’, or Capital Works, additional to an actual building. Some Quantity Surveyors miss them, and that means your clients miss out on some depreciation.

And they can be missed in commercial properties as well as residential ones.

Why? Laziness, sometimes. 

A lack of understanding, perhaps? 

We’ve been doing this for over 20 years so we know what to look for. 

And when we inspect a property, we like to send a Quantity Surveyor there as opposed to a data collector. Call us old fashioned, but we think it’s best practice for the person who inspect the property to be the one who costs the Capital Works and values the Assets. 

Do you have a client with a property you would like us to tackle? Use your booking link or make an enquiry online.

Let’s look at commercial properties first. We are doing an increasing number of them – everything from small shops to large farms.

Key Points

• Owners of shops and offices are entitled to claim depreciation on the common area Capital Works and Assets, e.g. underground carparks, foyers, elevators, etc.
• Factories and warehouses are often part of a strata complex with fencing, lighting and security systems in the common areas.
• Apartments can also have significant Capital Works deductions; they often have underground parking, gyms and pools and fancy roof top areas with BBQs.
• ‘Hard Landscaping’ is Capital Works, but ‘Soft Landscaping’ can’t be depreciated so we separate out the hard from the soft in our Depreciation Schedules.

What gets missed with shops and offices?

We’ll tackle shops first.

Standalone shops are pretty simple. But shops that are part of large complexes can have more opportunities. Often, shops are part of a strata complex, just like an apartment, and the owners are entitled to claim depreciation on the common area Capital Works and Assets.

Think underground carparks, foyers, elevators etc. The Contract of Sale can be invaluable with these jobs.

And if the shop can be used for food prep and service, there is often a grease trap. Gee, a lot of people miss them.

Fitouts can also be tricky. If a client buys a property with a tenant in-situ and that tenant paid for the fit out, they would likely be depreciating it. But if the tenant has left and the fitout is still there, or if there was a landlord contribution for the fitout, the new owner of the property can depreciate it.

Similar opportunities are available for offices.

What gets missed with factories and warehouses?

Factories and warehouses are often part of a strata complex with fencing and lighting in the common areas and perhaps security systems and gate motors. There will also be fire services, drainage and concrete. Lots of it. And it won’t be the same as the concrete on your driveway at home.

Again, the Contract of Sale can be useful because it will often tell us about the common areas.

Even standalone factories invariably have a lot of concrete – you can read more on this here.

What gets missed with farms?

Farms are whole other thing and we can understand why most Depreciation Schedule providers avoid them, or do them badly. We do them often and have a Quantity Surveyor who knows more about cattle crushes and silos and goodness knows what else than he ever thought he would when he was a callow student many years ago. 

Farms can have numerous buildings, some of which interestingly can be claimed as Plant and Equipment. 

When is a shed not a building? When it’s a shearing shed.  A shearing shed is Plant and Equipment. Oddly, the Effective Life is 50 years, longer than Capital Works are typically, but because it’s Plant and Equipment, the DV rate is 4%. Or in some cases the Instant Asset Write-Off can be used.

When else is a shed not a building? When it’s a milking shed. Did you know there is also something called a ‘maternity barn’ on some dairies that is also Plant and Equipment – 20 year Effective Life.

And beyond the buildings, farms have culverts and dams and concrete channels. 

And of course there is all that fencing. Thankfully in most cases there is a paddock plan.

And all those cattle crushes.

Yee haa, cowboy!

What gets missed with residential properties?

We’ll divide these broadly into apartments and houses.

Apartments, like strata offices, can have significant Capital Works deductions beyond the apartment themselves. There is often underground parking, gyms and pools and fancy roof top areas with BBQs where residents congregate to look down upon the masses.

We very helpfully split the common Capital Works from the in- apartment Cap Works, as we do with the Assets. Other providers don’t do this.

Houses are easier, of course. But there is still fencing and driveways and often retaining walls. There can be pergolas and elaborately constructed BBQ areas  And what about landscaping?

‘Hard Landscaping’ is Capital works, but ‘Soft Landscaping’ can’t be depreciated. That’s because depreciation is driven by Effective Lives. A concrete path has an Effective Life of 40 years, but a geranium, say, does not have an ATO Effective Life. So we separate out the hard from soft landscaping.

There are also houses that are part of gated communities. They can be trickier as owners often pay levies for the upkeep of roads, tennis courts and pools etc, so we can often depreciate them.

If you have a client we can help with claiming depreciation, please use your booking link, or make an online enquiry.