Claiming Depreciation On An Office Fit Out
Hidden tax incentives that reduce the cost of your commercial fitout
There’s a whole realm of hidden tax incentives to take advantage of when setting up a new office. Did you know that owners of commercial property are entitled to make deductions on all the things that make up their office fitout? This applies to any building works undergone, equipment, and any other relative trades or capital expenses that help get a business up and running.
Many business owners are reducing the cost of their office fit outs by claiming depreciation based on the decline in value of each of their assets. Not only that, but they’re also claiming on all the transportation and installation expenses, as well as any future wear and tear. How? Let the fitout experts enlighten you on all there is to know about claiming depreciation on your capital expenses:
Who’s entitled to claim depreciation on an office fit out?
Only the holder of a depreciating asset. In most cases, the legal owner of a depreciating asset (the person or entity who paid for the fit out/office upgrades) will be its holder. Even if you lease your commercial premises, you’re still entitled to make a claim under ATO legislation. In cases where there is more than one holder, deductions are calculated based on each person’s interest in the asset/s.
What constitutes a capital expense?
A capital expense is any amount used by a company to acquire, upgrade or maintain a long-term asset such as their commercial property, building or equipment. These capital works or plant and equipment assets are written off over a period of time; making a commercial fit out an attractive investment for any business.
Here a some deductible capital expenses in a typical office:
- - Alarms
- - Mezzanines
- - Furniture and workstations
- - Office partitioning
- - Kitchens
- - Ceilings
- - Lighting
- - Computer equipment
- - In-house software
- - Signage
- - Carpets and flooring
How do you make a claim on your office fit out?
To get the biggest bang for your buck come tax time, you’ll need a good understanding of tax law and construction costs. But of course, there are experts you can enlist to help you with all of the legal nuances and entitlements.
Nonetheless, the Australian Taxation Office has created an online deductions tool that calculates the decline in value of each of your assets – saving your calculations for your tax agent or your own records.
The depreciating assets you lodge will automatically populate for future returns. The tool can be easily accessed via your myGov account. But you’ll need an accountant to handle any complex claims, like in-house software or intellectual property assets.
How is an office fit out depreciation calculated?
There are two methods when it comes to working out the decline in value of your office fit out:
- The prime cost method or;
- The diminishing value method
The prime cost method assumes the value of your fit out decreases constantly over its effective life, whereas the diminishing value method assumes the loss of value each financial year is a constant percentage of each year’s base value. While you can initially choose which method to use when working out your depreciation entitlements, you cannot change your method after the fact.
What happens after a business vacates the premises?
When the time comes to hand back the keys, business owners will need to meet their lease make good or de-fit obligations. These provisions are a standard inclusion agreed upon by both the landlord and tenant before entering into a commercial lease.
Depending on the conditions of your contract, you may be liable to strip the premises of any changes, alterations or fit out works you’ve undergone. Contentious as the clauses may be, the idea is to simplify the handover process for all parties involved. After all, the new tenants will likely require a fit out that’s unique to their business.
Should a record of office fit out costs be kept for tax purposes?
It’s a good idea to keep a hold of all any receipts or invoices from your chosen fit out company. But if you haven’t done so come tax time, it’s not the end of the world. Quantity surveyors are recognised by the ATO as construction industry professionals for tax purposes. An accredited quantity surveyor will carry out a detailed site inspection, evaluating each addition to your office fit out and its depreciating value.
Want to make things easier for yourself?
The truth of the matter is, most business owners are far too busy to school up on capital allowances. So we make it easier for you by overseeing your entire fit out project from start to finish. Fast Fitouts has been working with our commercial finance friends over at Silver Chef to help our clients navigate the many grey areas and rules of depreciation.
If you ever need help juggling the lucrative legals of your upcoming fit out, reach out to Adam and his team of specialised professionals for a free concept and pricing service. With 25+ years experience in the industry – you could say they’ve completed their fair share of high-quality, all-encompassing projects. Call 1300 303 831, email firstname.lastname@example.org or fill out the below enquiry form for more information.
Please note: Fast Fitouts is not a financial adviser and this article is intended for educational purposes only. You should consider seeking independent legal, financial, taxation or other advice for information that relates to your unique circumstances.
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