Many commercial tenants are unaware of the potential tax savings available through tax depreciation on their leased properties. Whether you’re running a restaurant, a retail shop, or a professional services office, understanding what you can claim can improve cash flow and reduce tax obligations. This guide helps commercial tenants uncover hidden tax savings by claiming depreciation on fit-outs and improvements.
As a commercial tenant, you’re likely investing in fit-outs and improvements to make the space work for your business. These additions, often a significant expense, can be claimed as depreciable assets. This allows you to reduce your taxable income and keep more cash in the business.
Commercial tenants can claim two main types of depreciation on fit-outs and improvements: Plant and Equipment (Division 40) and Capital Works (Division 43).
| Category | Examples | Deduction Rate | Typical Useful Life |
|---|---|---|---|
| Plant & Equipment | Air conditioning, office furniture, kitchen equipment, IT equipment | Varies (10–20% annually) | 2–20 years depending on the asset |
| Capital Works | Partitions, built-in shelving, structural modifications | 2.5% annually | 40 years |
Consider a restaurant owner who has invested $100,000 in a fit-out, which includes kitchen equipment, lighting, furniture, and built-in counters. Here’s how depreciation might apply:
Plant & Equipment (Kitchen Equipment, Lighting, Furniture):
Capital Works (Built-in Counters, Partitions):
| Asset | Cost | Depreciation Rate | Annual Deduction |
|---|---|---|---|
| Commercial Oven | $20,000 | 20% | $4,000 |
| Lighting | $10,000 | 10% | $1,000 |
| Furniture | $15,000 | 10% | $1,500 |
| Built-in Counters | $30,000 | 2.5% | $750 |
| Partitions | $25,000 | 2.5% | $625 |
| Total Annual Deduction | $7,875 |
In this case, the restaurant owner can claim $7,875 in annual deductions, which directly reduces taxable income and boosts cash flow.
Now imagine a consulting firm that has leased office space and spent $40,000 on a fit-out, including workstations, partitions, and IT equipment. Here’s what they could claim:
Plant & Equipment (IT Equipment, Furniture):
Capital Works (Partitions, Shelving):
| Asset | Cost | Depreciation Rate | Annual Deduction |
|---|---|---|---|
| Computers | $10,000 | 25% | $2,500 |
| Desks and Chairs | $5,000 | 10% | $500 |
| Partitions | $15,000 | 2.5% | $375 |
| Built-in Shelving | $10,000 | 2.5% | $250 |
| Total Annual Deduction | $3,625 |
In this example, the consulting firm can claim $3,625 annually, providing helpful tax relief on office improvements.
To fully unlock the benefits of tax depreciation, consider the following:
Can I claim depreciation if the landlord paid for the fit-out?
No, only the party who paid for the improvements can claim depreciation. If the landlord covered the costs, they would be entitled to the deductions.
Is a depreciation schedule worth it for small fit-outs?
Yes, even smaller fit-outs can yield valuable deductions over time. Consulting a quantity surveyor can help determine the potential savings.
What happens if I move out?
If you paid for the fit-out and leave certain items behind, you may still be eligible to claim depreciation on those assets as long as you originally paid for them.
Claiming tax depreciation as a commercial tenant is a powerful way to improve cash flow and reduce tax burdens. With a tax depreciation schedule, you can maximise eligible deductions and keep more cash in the business for future growth.
Whether you’re fitting out a restaurant, office, or retail space, consulting a qualified quantity surveyor is the first step toward unlocking these tax benefits. Start exploring how much you could save and bring those hidden tax benefits to light.