The Australian Taxation Office (ATO) allows hoteliers and publicans (along with all other commercial property owners and tenants) to claim a capital allowance for the wear and tear of their building, and for the depreciation of their plant and equipment assets over time.
What many freehold and leasehold owners are missing though, are the accelerated deductions available when they refurbish their premises.
Unfortunately, some publicans are losing thousands, sometimes hundreds of thousands of dollars in tax deductions as they are not effectively accounting for the removal and disposal (scrapping) of their building and assets when they update and upgrade their property.
CASE STUDY
Our new client purchased an average country pub back in 2015. At the time it had great bones and location but was in desperate need of a face-lift and upgrade. The previous owners had been there since 1989 and it looked like not much had changed in that time, with the latest improvements occurring in the early 1990s.
Our client had purchased both the freehold and leasehold, and completed a full internal renovation in February 2018. Then they got in touch then to discuss their needs for a hotel depreciation schedule.
The $500,000 refurbishment included a kitchen upgrade, re-configuration of the bar area, addition of an outdoor beer garden and general modernisation throughout.
Our clients “scrapped” old assets that had a residual value of $64,382. These assets included the furniture, lighting, carpet, bar equipment, kitchen appliances and bathroom accessories.
This $64,382 deduction was claimable in total in the year the items were disposed of.
In addition to that, as our clients were not using a quality depreciation schedule previously, they were able to amend their previous two years tax returns and back claim $59,473 in deductions for the original structural component (Division 43) and for the existing plant and equipment assets (Division 40).
Below are the tax depreciation deductions that our client claimed:
| Back Claim of Deductions (First two years of ownership) | Total Scrapping Deductions | 2017/2018 Financial Year | Total deductions applied in that year |
| $59,473 | $64,382 | $67,896 | $191,751 |
Total deductions claimable for the first 8 years = $581,231.
The one-off cost of our depreciation schedule was less than $5,000.
When considering the deductions available for the cost of the report which is 100% tax deductible, it was worth the investment from our client with instant and substantial results for improving their cash flow.
Please note that all commercial properties are quoted on an individual basis subject to the property, it’s use, and the extent of work required. In all cases, we conduct sufficient preliminary research and investigation to ensure that our schedules always represent excellent return on investment.
If you would like to discuss your bar, hotel or pub premises with us, send an email through to our Senior Tax Depreciation Specialist Alex Konjarski at alexk@capitalclaims.com.au or, call Alex on 1300 922 220.
Related articles:
Pubs and hotels set to benefit from increased and extended “instant asset write-off”
Top 4 tips for maximising depreciation deductions in your hotel
