Tax Depreciation for Tenants And Owners of a Commercial Use Investment Property

Tax Depreciation for Tenants And Owners of a Commercial Use Investment Property
July 23, 2019 Liam Smith
Liam Smith
In Money

Commercial use investment properties are very popular nowadays. They’re one of the best types of properties to invest in. That’s because it’s fairly easy to find the right tenants and to make a profit. For tenants, commercial properties are ideal business opportunities and will serve them as well as they serve the owners. The thing is, you could end up paying a lot more for a commercial property than you need to. With tax depreciation for both tenants and owners, you’ll be lowering your costs and really getting your money’s worth.

1. Rules

There are certain rules for depreciation. For example, the first rule you need to be aware of is that the owner can’t claim depreciation for a building if they are occupying it themselves. So, this is only applicable to investment properties because they are income producing. Things get a bit complicated, though, as there are ways for the owner to occupy a commercial use investment property and still claim depreciation.

If the building or property is purchased by a company or a trust, the owner can occupy the property. In this case, they can also claim depreciation as a tenant. This is a great option for those who currently don’t have tenants but want to claim the depreciation.

2. Choose the right method

There are two methods of tax depreciation that you can choose from. You should go with the one that aligns with your investment strategy. Of course, this is all talk for after all the calculations have been made. The two methods are called prime cost and diminishing value methods. To know which method is best for the property investor i.e., take a look at their intentions.  As well as that, the method depends on whether the investor has a long or short term strategy. 

Under the prime cost method, the deduction is calculated as a percentage of the cost for each year. This method works better for long term investments because it spreads deductions out over a period of time. The diminishing value method, on the other hand, is great for claiming greater portions of asset costs in earlier years. It increases deductions earlier. As well as that, you should know that under the diminishing value method, the deduction is calculated as a percentage of the balance you have left to deduct.

3. Fit-out depreciation

It can be hard figuring out who has the right to claim what on the property. It’s true that both owners and tenants can claim tax depreciation, but it’s important to elaborate on that statement. Simply put, both parties are entitled to any fit-out installed on the property. If it’s the tenants who added a fit-out element, they have the right to file for tax depreciation. All of this includes things like desks, carpets, vinyl, firefighting equipment, and security systems.

As an owner, you’ll get to claim depreciation on other things. They’re also the fit-out installations that we mentioned, but not while the current tenants are still there. However, you’ll be able to claim depreciation on all the easily installed assets after the lease has ceased and the tenants have left. If you’ve had previous tenants who didn’t tax depreciation, you have the right to do it yourself. Of course, you’ll need to pay attention to what it says in the lease. 

In some cases, the lease states that the property needs to return to its original state after the tenants move out. Removed or scrapped off items will be written off, and the leftover value will be escalated. Then these items can be claimed as a 100% deduction at the end of the year.

4. Talk to a professional

If you’re not sure exactly how you qualify for the tax depreciation and what you need to do in order to obtain it, you should talk to a professional. Firms like WRC Quantity Surveying will be able to give you the advice you’re looking for. As well as that, they’ll be able to give you what you need. It’s always better to turn to a professional in this kind of situation as they have much more experience in the field than you do. You’ll walk away with all the right information and won’t have a doubt in your mind any longer.

It’s a good idea to write all of your questions down so that you don’t forget anything. Professionals can also help you carry out the tax depreciation instead of just giving you advice on how to do it. In any case, you’ll be in the right hands and will get what you deserve without any hassle. 

5. Age doesn’t matter

Most owners and tenants give up from the tax depreciation process because they think the property is too old. Thus, they lose more money than they should. You should know that the age of commercial property doesn’t matter at all. As an owner, you can claim capital works deductions on properties built after 1982, that’s true. You can even claim tax depreciation for recent renovations that were completed by the previous owner.

But, when it comes to plant and equipment items- age doesn’t matter. This includes carpets, air conditioning units, lights, light fittings, and hot water service among other things. Don’t do any renovations before a thorough inspection of the place is conducted, either. You could be damaging your own profits, as the items you’re planning on removing could be eligible for a tax deduction, too.


As you can see, you don’t have to spend a fortune on your investment property. By doing research, you’re ensuring that you’re only spending as much as you need to. If you’re qualified for tax depreciation, there’s no reason not to opt for it. Regardless of if you’re a tenant or an owner, you’ll get to claim tax depreciation and enjoy the most out of your commercial property. Even if you’re choosing the same option at the same time, both of you will get the tax return that you need.

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