Hoteliers often renew and transform their hotel décor in a bid to offer a point-of-difference in a competitive industry and to stay modern and current for their guests.

Items are scrapped within a property for several reasons. The most common reason is ‘not fit for purpose’ because of obsolescence, functional inadequacy or dated style.

Essentially, if an item is scrapped, it’s a loss to the owner. Legislation allows owners to claim additional deductions over and above their normal depreciation claim for assets being removed from their property. The remaining depreciable value of any scrapped items can be claimed as an immediate deduction in the year these items are removed from the property.

Often overlooked these valuable deductions apply to both removable plant and equipment assets like hotel signage, carpet and floor coverings, light fittings, air conditioning units and bar fridges and the fixed assets or structural capital works (division 43) elements of a building like inground pools and garden retaining walls.

The deductions for structural or fixed assets are especially valuable when scrapping occurs. These assets are written off at a much lower rate over forty years at 2.5 per cent per year, often resulting in a substantial remaining undeducted value for the owner to claim in its entirety when removed.

The following example is taken from a BMT Tax Depreciation Schedule completed recently for a fifty room hotel in southern New South Wales.

In the scenario, the hotel owner was updating the fit-out after owning the property for one year. The fit-out was installed eleven years ago by the previous owner.

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As the example shows, the hotel owner could claim $178,398 in plant and equipment depreciation and capital works deductions. After one year there is a total residual value of $781,200 for capital works and $511,876 for plant and equipment.

See also: Hotel market prime for new development, owners reminded of significant depreciation benefits - BMT Tax Depreciation

By claiming scrapping for the items removed, the hotel owner can claim a total deduction of $1,293,076 in the year of the items’ removal. They can also claim deductions for the newly installed fit-out.

Prior to removing any fit-out, it’s crucial that assets have been properly assessed. Hotel owners should speak with a specialist Quantity Surveyor to ensure they don’t miss out on any eligible deductions.

BMT provide comprehensive depreciation schedules and asset registers compliant with Australian Taxation Office regulations, meaning that deductions are detailed and evidenced correctly in the event of an audit.

Article provided by BMT Tax Depreciation.

Related Reading:

See the depreciation deductions available in a hotel room

What depreciation deductions are hotel owners entitled to?

Can you claim depreciation for an older hotel?