If you hold a property as an investment, you may allow tenant changes to the improvements, generate some form of change to the investment and/or re-let the property to new tenants. As part of these changes, consideration should be given to “how does this affect the deductions”. One simple example is where a tenant removes part of landlord assets(s) to make an approved change which means the asset is no longer available and therefore the remaining portion of its value should be written off eg. ceilings, flooring, partitioning, shopfronts, etc.
Good management will always look at this aspect to ensure accelerated deductions are captured and new capital works claims are properly analysed and claimed. Particularly important, is any change associated with a make good requirement on a tenant or any landlord contribution to tenant fit-out. Assessment of the proportion to write off should be an activity for a professional and photographic records of before and after can form the best basis for maximising deductions. Another area to monitor is tenant movements which can give additional entitlements to capital allowances claims by a landlord. This comes about because under Division 43 of the ITAA (Income Tax Assessment Act), your deductions relate to ownership and not direct expenditure.
Put another way, if tenants leave their fit-out behind when they leave, the landlord takes ownership and eligible items can generate deductions in future years for the landlord, irrespective of who paid originally. An accredited professional construction consultant can assist with this best if it is a consideration before the tenant exists the property. While investors are able to benefit from depreciation and capital allowances, developers can’t directly claim the same deductions, however, whenever developers buy existing properties for extension or refurbishment, they should be collecting information for collating with their additional costs and formulating re-vamped depreciation schedules for an incoming investor.
The refurbishment will generate assessable income deductions for a subsequent purchaser, but if an investor completes the same scope of work, then there is a big benefit to accounting for the costs as they happen. The more you look at the legislation and property variables, the more the benefits can enhance your investment, so take the time to check the options with an experienced depreciation expert. Realising the benefits of active management of the property, will substantially improve the cash flow and overall returns.
