According to Bradley Beer, the Chief Executive Officer of BMT Tax Depreciation, property depreciation is something all hoteliers should know about and should be taking advantage of.

“Claiming depreciation is paramount for hotel owners, as it is for any commercial property investor,” said Bradley.

“A depreciation claim can provide the difference in income for owners to turn a negative cash flow property into an investment with a positive cash flow. 

“It can also assist in covering general day to day operating costs, which in turn can help the business remain competitive.” 

To assist hoteliers understand property depreciation and how it can help them earn more from their property, here are five facts about tax depreciation.

1. What is depreciation and what can be claimed?

The Australian Taxation Office (ATO) allows commercial property owners to claim depreciation for their property. Depreciation is a deduction available due to the wear and tear of a building’s structure (capital works deduction) and its fixtures and fittings (plant and equipment items) over time. It is considered a non-cash deduction, meaning investors do not need to spend any money to be able to claim it.

2. No property is too old

Owners can claim capital works deductions for any commercial property built after the 20th of July 1982. Despite restrictions the ATO place on capital works deductions based on the construction date of the property, owners may be entitled to claim any recent renovations which have taken place since the 20th of July 1982, even if they were completed by a previous owner. Depreciation of plant and equipment items can be claimed regardless of age. Examples of plant and equipment items include carpets, air conditioning units, the hot water service, lights and light fittings.

A specialist Quantity Surveyor will conduct a site inspection to take pictures and make note of additions that have been made to the property as well as capturing all existing plant and equipment items.  They will provide an itemised tax depreciation schedule which outlines all the deductions available for the life time of the property (40 years). 

If a hotel owner is thinking of completing any renovations, they should also request their Quantity Surveyor complete an inspection before and after the renovation takes place, as any removed items may be entitled to be written off as an immediate deduction.

3. Depreciation of fit out

Working out who is entitled to claim depreciation for certain items can be a complicated process when compiling a property depreciation schedule for commercial buildings. Both owners and tenants have the right to claim depreciation entitlements when it comes to any fit-out installed in a property.

Commercial tenants are able to claim depreciation on any fit-out they add to a property. These items include assets such as desks, blinds, shelving, carpet, vinyl, fire fighting equipment, furniture and security systems. Commercial building owners also may be able to claim depreciation on any easily installed assets and any assets left behind by previous tenants once their tenancy has ceased. 

If lease conditions mandate that tenants return a property to its original condition at the end of a tenancy, a specialist Quantity Surveyor can prepare a depreciation schedule covering items which are removed or scrapped so these can be written off, escalating the left over value of these items so they can be claimed as a 100 per cent deduction in the year of removal. 

4. Recoup missed deductions

Commercial property owners often enquire about a property they have owned and rented for a number of years but have not claimed or maximised their depreciation deductions for.

The ATO allows tax returns to be easily adjusted for two years after the initial submission. This enables property owners to recoup some of the deductions that may have been missed.

In the situation where an investor has missed or not maximised their claim in previous years, the depreciation schedule can be tailored within the eligible years.

5. Consult with a specialist Quantity Surveyor

Calculating the depreciation for hotels and other properties can be quite a complex process. For this reason it is important to consult with a Quantity Surveyor who specialises in tax depreciation.

The ATO recognise Quantity Surveyors to be one of the few professionals with the appropriate construction costing skills to calculate the cost of items for depreciation purposes. Quantity Surveyors are qualified under the Tax Ruling 97/25 and also gain access to the latest ATO rulings and information through their affiliations with industry regulating bodies.

The cost of preparing a tax depreciation schedule is 100 per cent tax deductible. 

BMT Tax Depreciation also guarantees to double their fee in deductions in the first full financial year or they will not charge for their services.

Hoteliers who would like more information can visit BMT Tax Depreciation’s commercial property page. Or for a free over the phone assessment of available deductions they may be able to claim, they can contact BMT Tax Depreciation on 1300 728 726.

See also:

Veriu expands to Melbourne with acquisition of Punthill Apartment Hotel Group

Kingfisher Bay Resort Group portfolio sold for $43 million

Naumi Hotels purchase two Wellington hotels