Making the Most of Commercial & Industrial Building Depreciation Deductions

As part of their COVID-19 support package for businesses, the Government recently reintroduced building depreciation deduction claims. At a cost of $2.1 billion, it allows owners of commercial and industrial buildings, including hotel and motel owners, to claim depreciation on their properties.

Over the long term, the Government hope the move will improve business confidence and encourage investment in new and existing buildings by making this asset class more tax efficient than many other investments.

However, in the short term, if you’re a commercial or industrial property owner, it opens up a huge opportunity to make a real difference to your balance sheet and cash flow – something we could all do with as we navigate our way out of Level 3 and 4 lockdown. Prendos Senior Valuer Gordon Edginton agrees.

Gordon Edginton - Registered Valuer and Director
Gordon Edginton, Prendos Director & Registered Valuer

“The fact that the Government has reestablished this deduction as of 1 April 2020 is great news for commercial property investors. They will be able to claim an annual expense that reflects the deterioration of their building – albeit at lower rates of 1.5% straight-line or 2% diminishing value. Even better is that these depreciation measures are being announced as permanent changes.”

To unlock the full financial benefits in this area, especially with depreciation rates varying widely for each item, Gordon says the best approach is to seek independent, expert advice from a valuation specialist.

“The Prendos Valuation team has extensive experience in asset and building depreciation. We can advise you on the best approach for your unique situation, and make sure you get the best result for your back pocket. It should hopefully go some way in helping hotel and motel owners impacted by COVID-19, as well as building owners affected by reduced rental income.”

To accurately assess asset and building depreciation, Prendos typically starts by identifying and compiling a schedule of depreciable assets such as chattels, fitout and the building structure.

“We’ll then calculate a dollar sum for these items, based on their ‘in situ’ value and use. Once you have this information on record it becomes far easier to assess what you can claim over time. We’re also able to help you minimise any ‘claw back’ of depreciation claimed when your assets are sold.

“In times of financial uncertainty it’s important to make the most of all tax benefits that come your way, and this typically means getting advice from an expert.”

The Government has also announced other tax changes for small to medium enterprises (SMEs), including:

A loss carry-back scheme: SMEs recording a loss in the 2020 or 2021 tax year will be allowed to carry the loss back and offset it against profits from the tax year prior.
Tax loss continuity rules relaxation: SMEs experiencing a change in ownership of greater than 51% will not have to sacrifice their tax losses, instead using these to offset profits in later years. This move is estimated to save SMEs $60 million per year.

Further business-related responses to COVID-19 are expected in the Budget 2020, scheduled for 14 May.

To find out more, give us a no obligation call on (09) 887 7442 or email [email protected]. We’d be happy to discuss your situation.

May 4, 2020

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