The tax benefits hidden in your business fit-out

Whether you own or lease your business premises be sure you are not missing out on the tax benefits you could be claiming for the depreciation of your business fit-out.

What is “fit-out”?

When we say fit-out we are referring to the additions a business owner includes to a building to make it suitable for their business purposes.  Examples include additions like partition walls in offices, basins and wash stations in salons, kitchens, bathrooms, carpet, blinds, mezzanines, bench counters, painting, floating floor boards, bars, cool rooms etc.

Who can claim depreciation on the fit-out?

The owner of the fit-out (the person or entity who paid for it – brand new or second hand) is entitled to claim tax deductions for the depreciation of the fit-out under Division 43 (building) and Division 40 (plant and equipment) of the ATO legislation.

This means that even if you lease your premises, any building works you have done, or any plant and equipment assets you have added are able to be claimed by you as capital works and depreciation when you do your business financials.

What does it mean when I claim depreciation on my fit-out?

Claiming depreciation of your fit-out simply means you are claiming a tax deduction for the ageing and wearing out of the building works and assets over time.  Your accountant will simply include the calculated depreciation amount in your business financials as an expense.  The great thing about this expense is that you have already paid for the building and assets already anyway, so there is no further expense required to make the claims.  Increasing your expenses reduces your taxable profit and therefore your tax payable at the end of financial year.

How is the depreciation calculated?

Depreciation is calculated off a construction cost (for Division 43 building works), and off professional valuation (for Division 40 Plant and Equipment items).  Building costs include not just materials and labour but also preliminary expenses and consultants fees.  Division 40 assets are valued at a total installed cost (not just the receipted cost of the asset).  

What if I don’t know the costs of my fit-out?

If you don’t have all the invoices and receipts for your fit-out, or you have purchased the fit-out as part of a business acquisition that is no problem.  Quantity surveyors (those who are registered as tax agents) are recognised by the ATO as appropriately qualified to estimate building works and value plant and equipment assets for the purpose of calculating depreciation.  

Accountants and real estate agents are not recognised by the ATO to estimate construction costs for depreciation purposes.  The most effective way to maximise your deductions and cash return is to have a depreciation schedule prepared by a qualified and registered quantity surveyor.

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