Tax advantage

Tax advantage

Total Property - Issue 1 2019

Claiming the correct levels of asset tax depreciation when purchasing a commercial or industrial property is a vital part of asset management and financial planning.

“Fitout items depreciate more quickly than the majority of most structures,” says John Freeman, director of valuation services for Bayleys Valuations. “They can be replaced perhaps several times during the life span of the structure to which they are attached, and this is a fact the IRD continues to recognise with the enhanced annual allowances for fitout assets.”

Depreciable assets typically make up 10-20 percent of the total purchase price of improvements in an industrial property, rising to 20-40 percent for an office building, and as much as 30-50 percent for hotels.

“Most property investors are aware that ‘major’ cost fitout assets – such as lifts, air conditioning, plumbing reticulation and fixtures, electrical reticulation and lighting, fire detection and firefighting systems – attract enhanced levels of tax depreciation when separately valued from the building structure at creation or purchase time,” says Freeman.

“However, there are also ‘minor’ cost fitout assets that attract similar levels of depreciation, which investors may not know about – meaning many could be missing out on valuable claims.”

Ranging from hard standings, canopies and security systems through to bathroom items, these may seem of minor value individually. But many properties will have a number of them installed so, collectively, they can give rise to substantial sums from a tax depreciation perspective.

These can add up to several thousand dollars a year in claims, according to Mike Morales, Bayleys Valuations’ national director, depreciation and plant and machinery valuation.

“For smaller long-term investors, in particular, this can make a material difference to business planning and performance and, ultimately, how their investment stacks up.

“That’s why, when purchasing commercial and industrial property, it’s important to seek independent, expert advice from valuation specialists who can identify and accurately value depreciable assets,” says Morales.

“Also, increasingly, individual property sales are being reviewed by the IRD, meaning it’s more important than ever to work with the experts and get it right.”

Based on Bayleys Valuations’ experience, here are seven lesser-known items that qualify for enhanced tax depreciation:

KNOW YOUR ASSETS

Canopies

Structures with no walls, suspended over space such as a drive-through or storage area at an industrial property, or over the main entrance or street frontage of a commercial building. Distinct from retractable awnings, which attract a separate, faster rate of depreciation.

Paper hand towel and toilet roll dispensers

All properties have bathrooms and, in the case of hotels/motels, many of them. Depreciating at 100 percent per annum, dispensers of paper hand towels and toilet tissue can quickly roll out to significant claims.

Hand dryers

The depreciation rate for hand dryers is lower, at 67 percent. But a high-end dryer can be worth up to $4,500, attracting potentially $3,000 in depreciation per year. This can only be claimed if they are owned, and not leased as is sometimes the case.

Hard standings

Where land is covered with asphalt or concrete aprons, these are improvements whose value depreciates. Coverings for access or parking are often significant – and, with a value of $50-$100/m2 for asphalt and upward of $100/m2 for concrete, it can quickly add up to a valuable asset, the depreciation of which can be claimed at either 3 or 4 percent per year.

Roller door motors

Motors depreciate at a higher rate than the doors if their value is split out, meaning owners are missing out on hundreds of dollars in claims if they treat the door (including motor) as one asset.

Security systems

This covers a variety of assets, including alarm systems and sensors, burglar bars across windows and doors, and swipe card systems. CCTV equipment is not treated as part of a security system for tax purposes, but is depreciable under a separate category.

Runway beams

Typically found in industrial premises, the beam an overhead gantry crane or hoist travels along is often forgotten when owners claim depreciation on the crane. But these are typically worth $1,200-$2,500/m and can extend for tens of metres. They are often installed by tenants but, if not, the owner can generally claim on them.


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