Missing millions in depreciation

Experts say commercial property owners are missing out on millions of dollars in tax depreciation claims on overlooked assets, ranging from asphalt loading areas to bathroom hand-dryers, even toilet roll holders.

A Government review saw the removal of tax depreciation allowances for building structures from April 2011, but allowances for building fitout assets remained unchanged.

Director of Bayleys Valuations, John Freeman, says most commercial and industrial property investors know they can claim in relation to major fitout assets, such as lifts, air conditioning, plumbing and electrical reticulation, which are valued separately from the building structure at creation, or purchase time. But many overlook seemingly minor items that attract similar levels of depreciation. As a result, individual owners are miss out on claims collectively adding up to millions of dollars a year.

“Ranging from hard standings, canopies and security systems through to bathroom items — these assets may seem of little value individually. But collectively, they can give rise to substantial sums from a tax depreciation perspective.”

Claiming correctly on eligible assets can deliver a meaningful boost to a building owner’s business figures, says Freeman’s colleague, Mike Morales.

“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.

“This will help you to make full use of your claims entitlement, and therefore maximise the return on your investment.

“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,” he says.

Depreciable assets typically make up 10-20 per cent of the total purchase price of improvements in an industrial property, he says.

This rises to 20-40 per cent for an office building, depending on the level of fitout. For hotels the figure can be as high as 30-50 per cent.

“The reality is that fitout items depreciate more quickly than the majority of most structures. They may be replaced several times in the lifespan of a structure, which IRD continues to recognise with the enhanced annual allowances.

Bayleys Valuations has identified seven lesser-known items that qualify for enhanced tax depreciation:

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. They are distinct from retractable awnings, which attract a separate, faster rate of depreciation.

Paper hand towel and toilet roll

dispensers: Seemingly almost trivial, though all properties have bathrooms, while hotels/motels may have many. Depreciating at 100 per cent pa, claims on dispensers of paper hand towels and toilet tissue quickly add-up.

Hand dryers: Though depreciation for these is lower (at 67 per cent) a high-end dryer can be worth up to $4500, attracting potentially $3000 in depreciation-per-year, for each unit. This can only be claimed if they are owned, and not leased.

Hard standings: Where land is covered by asphalt or concrete aprons, such coverings are treated as improvements, whose value depreciates. The area of land coverings for building access, or parking for cars and trucks, is often significant, and, at a value of $50-$100 per sq m for asphalt and upward of $100 per sq m for concrete, it can quickly add-up to a valuable asset, depreciation of which can be claimed at 3-4 per cent a year.

Roller door motors: A roller door is a common feature of industrial and commercial properties which, as long as it’s working, gets little attention. But motors depreciate at a higher rate than 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 a single asset.

These assets may seem of little value individually. But collectively, they can give rise to substantial sums from a tax depreciation perspective. John Freeman

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. Mike Morales

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 sits on and travels along is often forgotten when owners claim depreciation on the crane. But these are valuable assets in their own right, typically worth $1200-$2500 per sq m and extending for tens of metres. If not installed by tenants, the owner can generally claim on them.