Commercial Fit-Out Depreciation: What You Can Claim

Commercial fit-outs are often one of the most valuable yet overlooked sources of tax deductions available within commercial property.

Whether you’re a commercial property owner, tenant, owner-occupier, company, trust, SMSF trustee, accountant, CFO, or managing a multi-site operation, understanding how fit-out depreciation works can significantly improve cash flow and maximise after-tax returns.

Many businesses invest hundreds of thousands, and sometimes millions, of dollars into office fit-outs, medical centres, retail stores, warehouses, hospitality venues, childcare facilities, and specialist commercial spaces without fully understanding the depreciation deductions available.

This guide explains:

• What commercial fit-outs are
• Who can claim depreciation
• Division 40 and Division 43 deductions
• Leasehold improvements
• Tenant fit-outs
• Landlord-funded fit-outs
• Asset scrapping opportunities
• Business acquisitions
• Common mistakes
• Real-world case studies
• Frequently asked questions

What Is A Commercial Fit-Out?

A commercial fit-out refers to works completed within a commercial property to make the premises suitable for business operations.

Fit-outs can range from basic office improvements through to highly specialised facilities.

Common examples include:

Office Fit-Outs

• Partition walls
• Meeting rooms
• Workstations
• Reception counters
• Carpet
• Window furnishings
• Kitchens
• Data cabling

Medical & Dental Facilities

• Treatment rooms
• Joinery
• Sterilisation areas
• Specialist plumbing
• Medical gas installations
• Waiting rooms

Hospitality Venues

• Commercial kitchens
• Cool rooms
• Bars
• Gaming areas
• Cold storage
• Service counters

Retail Stores

• Shopfronts
• Display shelving
• Counters
• Point of sale infrastructure
• Lighting

Warehouses & Industrial Premises

• Mezzanine levels
• Racking systems
• Security systems
• Office areas
• Warehouse lighting

Who Can Claim Depreciation On A Commercial Fit-Out?

The entity that owns and paid for the fit-out is generally entitled to claim depreciation deductions.

This may include:

• Commercial property owners
• Commercial tenants
• Owner occupiers
• Companies
• Trusts
• SMSFs
• Multi-site operators
• Franchise groups

Many business owners mistakenly assume they cannot claim depreciation because they lease the premises. However, tenants can frequently claim substantial depreciation deductions on leasehold improvements and fit-outs they have funded.

Commercial Property Owners

Owners can generally claim:

• Capital works deductions
• Landlord-funded fit-outs
• Base building assets
• Building infrastructure

 Commercial Tenants

Tenants can generally claim:

• Leasehold improvements
• Tenant-funded fit-outs
• Plant and equipment
• Tenant-owned assets

Even if the landlord owns the building, tenants can still claim depreciation on eligible improvements they install.

Owner-Occupiers, Companies and Trusts

Owner-occupiers, companies and trusts may also be eligible to claim depreciation on qualifying fit-out assets used within their business operations. Eligibility depends on ownership of the fit-out assets and the nature of the expenditure incurred.

SMSFs

Commercial property held within a Self-Managed Super Fund may also qualify for depreciation deductions.

This applies whether the property is occupied by an unrelated tenant or a related business operating under a compliant lease arrangement.

Understanding Division 40 And Division 43

Commercial fit-outs generally contain two categories of depreciable items.

Division 40 Assets

Division 40 assets are plant and equipment items that depreciate over their effective life.

Examples include:

• Air conditioning units
• Security systems
• CCTV
• Commercial appliances
• Furniture
• Computers
• Telephone systems
• Audio visual equipment
• Hot water systems

These assets often generate larger deductions in the earlier years.

Division 43 Capital Works

Division 43 applies to structural building improvements and construction expenditure.

Examples include:

• Walls and partitions
• Kitchens
• Bathrooms
• Internal construction works
• Built-in cabinetry
• Structural flooring
• Certain cabling infrastructure

These deductions are typically claimed over longer periods.

What Happens If You Don’t Have The Original Invoices?

Many businesses:

• Lose invoices
• Purchase second-hand fit-outs
• Acquire businesses with existing fit-outs
• Inherit improvements from previous owners

This does not automatically prevent depreciation claims.

A qualified quantity surveyor can estimate construction costs and value eligible assets for depreciation purposes where sufficient supporting information exists.

Buying A Business With An Existing Fit-Out

Business acquisitions often create significant depreciation opportunities.

Examples include:

• Medical centres
• Restaurants
• Retail stores
• Childcare centres
• Professional offices
• Warehouses

When a business is acquired, the purchaser may become entitled to depreciation deductions on acquired fit-out assets.

A detailed valuation can identify assets that may not have been fully recognised during the acquisition process.

Asset Scrapping Opportunities

One of the most overlooked areas of commercial depreciation is asset scrapping.

When renovations occur, businesses often remove:

• Carpet
• Joinery
• Kitchens
• Counters
• Partitions
• Lighting
• Air conditioning systems

The remaining depreciable value of eligible removed assets may be claimable as an immediate deduction.

Asset scrapping opportunities frequently arise during:

• Office refurbishments
• Medical upgrades
• Retail modernisation projects
• Hospitality renovations
• End-of-lease make-good obligations

End Of Lease: What Happens To Your Fit-Out?

When a lease ends, one of three scenarios typically occurs:

1. Make Good

The tenant removes the fit-out and restores the premises.

Potential asset scrapping deductions may become available.

2. Leave The Fit-Out

The landlord retains the fit-out.

Ownership and future depreciation outcomes should be reviewed.

3. Partial Removal

Part of the fit-out is removed and part remains.

This may create a combination of ongoing depreciation and scrapping opportunities.

Common Commercial Fit-Out Mistakes

Assuming Tenants Cannot Claim

Many tenants incorrectly believe only property owners can claim depreciation.

Missing Asset Scrapping Opportunities

Demolished and removed assets are often overlooked during renovations.

Relying On Previous Owners’ Schedules

A prior owner’s depreciation schedule may not maximise available deductions.

Failing To Separate Division 40 And Division 43

Incorrect classifications can impact deductions.

Not Obtaining A Professional Assessment

Many fit-outs contain significantly more depreciable assets than expected.

Case Study: Brisbane Office Fit-Out

A professional services business completed a fit-out within leased Brisbane CBD premises.

Fit-Out Value

$583,762

Division 43 Capital Works

$221,458

Included:

• Kitchen
• Partition walls
• Cabling

Division 40 Assets

$362,304

Included:

• Furniture
• Office equipment
• Security assets
• Eligible pooled assets

Results

• First Year Deductions: $329,459
• 10-Year Deductions: $411,648
• Total Forecast Deductions: $583,762

The depreciation schedule was prepared for less than $2,000.

Case Study: North Sydney Office Refurbishment

Professional services firm occupying leased office premises.

Division 43

$173,003

Included:

• Kitchen
• Internal walls
• Cabling

Division 40

$596,922

Included:

• Furniture
• CCTV
• Air conditioning
• Telephone systems
• Computer equipment
• Fire detection systems

Results

• First Year Deductions: $557,000+
• 10-Year Deductions: $632,144

Frequently Asked Questions

What is a commercial fit-out?

A fit-out is the combination of improvements, fixtures, and equipment installed to make commercial premises suitable for business use.

Can tenants claim depreciation?

Yes. Tenants can generally claim depreciation on eligible fit-outs and leasehold improvements they fund.

Can a landlord claim fit-out depreciation?

Yes. Landlords can claim depreciation on landlord-funded improvements and eligible building assets.

What if I purchased an existing business?

You may still be entitled to claim depreciation on acquired fit-out assets.

What happens when I renovate?

Assets removed during renovations may create immediate scrapping deductions.

Do I need all original invoices?

Not necessarily. A qualified quantity surveyor can often assist with estimating costs and valuing eligible assets.

Is the cost of a depreciation schedule deductible?

Yes, the cost of obtaining a depreciation schedule is tax deductible.

Key Takeaways

• Commercial fit-outs often contain substantial depreciation deductions.
• Both owners and tenants may be eligible to claim.
• Division 40 and Division 43 assets should be separately identified.
• Renovations can create valuable scrapping deductions.
• Business acquisitions can unlock additional depreciation opportunities.
• A professionally prepared depreciation schedule helps maximise available claims while supporting compliance.

Need A Commercial Fit-Out Depreciation Schedule?

Whether you’re acquiring a business, completing a new fit-out, renovating existing premises, or preparing for the end of a lease, a commercial depreciation schedule can identify available deductions and provide long-term tax planning benefits.

Request a Commercial Depreciation Assessment from Capital Claims Tax Depreciation. Or call us on 1300 922 220.