As part of the $2.8b support package for business admist the COVID-19 pandemic, the Government has reintroduced building depreciation deduction claims for property owners with commercial and industrial properties, at a level of 2 percent a year, starting this month in April 2020.
This announcement comes as a substantial boost to commercial property owners operating balance sheets. Depreciation deductions for commerical and industrial buildings were removed back in 2010 - this news come as an extremely welcome policy return to those heavily affected by COVD-19 measures.
Reinstating building depreciation will support longer-term economic productivity and
macroeconomic objectives by:
• encouraging investment in business premises and decreasing the cost of such
premises over time;
• improving business confidence; and
• enabling the capital cost of seismic strengthening of buildings to be depreciated.
What is depreciation?
A depreciation rate is the percentage of a long-term investment that you use as an annual tax deductible expense during the period over which you claim it as a tax deduction. Most assets lose their value over time through wear and tear or becoming out of date.
Depreciation is used to recognise this decrease in value and spread the cost of assets over their useful life.
What does this mean?
Here's a great example of how the new tax benefits will work.
Jane owns (through her company) a motel building with a tax book value of $3m. Under
current tax law it is not depreciated. From 2021/22 Jane is able to depreciate the building ata rate of 2%, which means her company can claim a deduction of $60,000 in the 2021/22 year, reducing her taxable profit.
This results in her company having $16,800 less tax to paythat year (as the company tax rate is 28%).
This package puts in place measures that will allow commerical property owners to breathe a little easier, and ensure we all fare a little better as we brave the storm and hardship of the upcoming months.
We recommend all property owners to seek independent advice from valuation specialists who can accurately value depreciable assets.
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