Greening Commercial Properties Tax Benefits via Depreciation

Greening Commercial Properties – Depreciation Benefits

In today’s world, where sustainability is becoming increasingly paramount, commercial property owners are exploring ways to make their buildings more environmentally friendly.

This aligns not only with global efforts to reduce the carbon footprint but also offers substantial financial benefits, including those through tax deductions and depreciation.

How to ‘green’ a commercial building?

There are numerous strategies to greening a commercial property, ranging from simple upgrades to more complex renovations.

Below, we’ll explore examples of energy efficiency measures that can significantly reduce your property’s environmental footprint and operational costs, while also increasing its overall property value and depreciation claims:

Energy Efficiency: Invest in energy-efficient lighting systems, heating, ventilation, and air conditioning (HVAC) systems, and appliances. LED lighting, for example, consumes less energy and lasts longer than traditional lighting, thereby reducing electricity consumption and operating costs.

Renewable Energy: Install solar panels or wind turbines to generate renewable energy onsite. These systems not only reduce reliance on conventional energy sources but also offer long-term cost savings and potential revenue through feed-in tariffs or selling excess energy back to the grid.

Water Conservation: Implement water-saving technologies such as low-flow tapware, toilets, and irrigation systems. Harvesting rainwater and recycling greywater for non-potable uses like landscape irrigation can further reduce water consumption and utility expenses.

Passive Solar Design: Is used to capture the sun’s heat within the building’s elements and to release that heat during periods when the sun is absent, while also maintaining a comfortable room temperature.

Thermal Performance Management: The use of low thermal mass material in strategically designed areas and the inclusion of insulation and energy efficient glazing technologies to minimise the need for operating heating and cooling assets.

Sustainable Materials: Use eco-friendly building materials such as recycled content, sustainable wood, and low-emission paints and adhesives. Designing with materials that have a minimal environmental impact can contribute to healthier indoor air quality and reduce waste generation during construction and demolition.

Green Infrastructure: Incorporate green spaces, such as rooftop gardens or green walls, to improve air quality, mitigate urban heat island effects, and provide habitat for wildlife. Green roofs, in particular, can enhance insulation, reduce stormwater runoff, and extend the lifespan of the roof membrane.

What are the depreciation benefits of greening a commercial property?

One significant financial benefit of greening commercial properties is the ability to claim depreciation. By claiming depreciation owners can reduce the taxable income, leading to lower tax liabilities and increased cash flow.

Depreciation falls under two categories:

Division 40: is the legislation that covers the depreciation of ‘plant and equipment’ within an income-producing property.

Plant and equipment assets that fall under Division 40 that are energy efficient are solar panels, lighting, HVAC systems, appliances, water tanks, and batteries.

Division 43: also known as ‘Capital Works Allowance’, Division 43 covers the deduction available to owners for the structural elements of a building and the items within the property that are deemed irremovable.

Items that fall under Division 43 that are sustainable include double-glazed windows, insulation improvements, sustainable/recycled wood, and heat-reflective materials.

In the below table, we have itemised the depreciation claimable for Division 40 and Division 43 over the first full financial years, over 5 financial years, and over 40 years:

energy efficient assets

As you can see the potential depreciation benefits of greening commercial property can offer a financial advantage for property owners and lessees.

We look at a real case study below that outlines what our clients claimed in depreciation from their energy-efficient refurbishment.

Case Study

Teddy and Louis purchased an office building in Brisbane in August 2023 for $3,800,000. They decided that they wanted to improve the energy efficiency of the building and reduce their operational costs.

The refurbishment cost $155,000. They added double glazed windows, solar panels, a heat pump hot water system, LED lighting and energy efficiency A/C upgrades.

Teddy and Louis were entitled to scrapping which is when a residual value is assigned to assets that have been removed from the commercial property. They scrapped out their windows and old lighting.

They were also able to make use of the small business instant asset write-off and the small business energy incentive because the assets were installed before 30th of June 2024. See further below for more information about both the instant asset write-off scheme and the small business energy incentive.  

Commercial property green refurbishment depreciation results

By Teddy and Louisa completing this renovation, they increased their depreciation results, their energy-efficient rating, and the value of their property.

Small business instant asset write-off

Small businesses, that have an aggregated turnover of less than $10 million, are entitled to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1st of July 2023 and the 30th of June 2024.

Small business energy incentive

The Australian Government announced on the 30th of April 2023 the small business energy incentive, this incentive offers some significant financial incentives for small businesses making energy efficient changes.

Businesses with an annual turnover of less than $50 million will have the opportunity to benefit from a bonus 20% tax deduction. These bonuses are capped at $20,000 per business, on up to $100,000 of total expenditure on eligible investments.

This tax incentive aims to assist small and medium businesses in implementing energy-efficient upgrade. In order to qualify, businesses must install qualifying energy-efficient assets or upgrades between the 1st of July 2023 and the 30th of June 2024.

It’s important to note that business owners should speak with their accountant or financial adviser before applying for this incentive, as it may not be suitable for all circumstances.

Other grants and incentives for greening commercial property

Across Australia, various other grants and incentives are available to encourage commercial property owners to implement green initiatives. These grants and incentives aim to support sustainability efforts and promote energy efficiency.

For example, the Australian government offers programs such as the Clean Energy Finance Corporation (CEFC) which provides funding and financial assistance for renewable energy projects and energy efficiency improvements in commercial properties.

Additionally, state and territory governments may offer their own grants and funding programs for greening commercial properties, so it’s worth exploring options at both the federal and local levels. 

How do I claim depreciation for greening my commercial property?

To ensure the best, ATO compliant results, commercial property owners should arrange for a depreciation schedule from a qualified quantity surveyor that specialises in commercial building depreciation.

Here at Capital Claims Tax Depreciation, we have over two decades of commercial property depreciation experience. We ensure property owners access maximum deductions for capital allowance and depreciation whilst remaining ATO compliant.

All commercial properties are thoroughly assessed for building and plant and equipment assets and we also review the contract of sale, inventories and lease arrangements to ensure maximum depreciation results and compliance.

You can reach out to us by completing our simple “Get a Free Quote” form or call and speak to our commercial depreciation experts on 1300 922 220.

If you currently have a depreciation schedule and have installed energy-efficient assets or completed a refurbishment, you may need to update your depreciation schedule. Contact your Capital Claims so you can start claiming today.

Why are green buildings important?

Whether you are a building owner or lessee, there are many reasons and advantages to greening your commercial property. Each step towards energy efficiency contributes to a more sustainable and financially viable commercial property.

Contact us today on 1300 922 220 for a comprehensive depreciation schedule tailored to your commercial property’s energy-efficient upgrades, ensuring you reap the full financial rewards of greening your commercial real estate.

FAQ’s

What is green buildings technology?

Green building technology refers to the application of innovative and sustainable practices, materials, and technologies in the design, construction, operation, and maintenance of buildings. It encompasses a wide range of strategies aimed at reducing the environmental impact of buildings while enhancing their energy efficiency, water conservation, indoor environmental quality, and overall sustainability.

How do I know what my energy rating is?

To determine the energy rating of your commercial property this can be achieved through various methods. One of the most widely recognised being the National Australian Built Environment Rating System (NABERS). NABERS provides a rating system that evaluates the energy efficiency, water usage, waste management, and indoor environment quality of buildings.

What does ESG mean?

ESG stands for Environmental, Social, and Governance. ESG factors are used to evaluate the sustainability and ethical impact of investments, businesses, and organisations.

Environmental: Environmental factors assess a company’s impact on the environment, including its carbon footprint, energy efficiency, waste management practices, and use of natural resources.

Social: Social factors evaluate a company’s relationships with its employees, customers, suppliers, communities, and other stakeholders.

Governance: Governance factors assess the structure, policies, and practices of a company’s leadership and management.

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