Maximise your claim for capital allowance and depreciation from your building and assets

Everything you need to know about claiming depreciation for your hotel

• What is a depreciation schedule for a hotel?

  A hotel depreciation schedule is a comprehensive report that itemises details regarding the structure of the hotel building (total build costs, effective life, depreciation claimable), as well as the plant and equipment assets of a hotel (asset values, effective lives and annual depreciation claimable). Using this detailed report, prepared by a quantity surveyor, hotel owners can claim depreciation as a tax deduction when lodging their financials to the ATO each year. These tax deductions reduce taxable income and reduce the tax payable by the business. In short, a depreciation schedule improves the cash flow position of a hotel each year.

• Who can benefit from having a depreciation schedule for their hotel?

  Both freehold and leasehold hotel owners can benefit from claiming tax deductions for the depreciation of their assets each year.

  Freehold hotel owners

  Freehold hotel owners typically own the structure of the hotel and the key infrastructure assets. These assets are likely to include air conditioning, hot water systems, refrigeration assets etc. Freehold owners can claim for depreciation of the building structure, and separately for any key assets they have paid for and provide within the lease.

  It is not uncommon that a hotel owner may own the building in one entity and lease and operate the business in another. A depreciation schedule will be required for each entity.

  Leasehold only hotel business owners

  Leaseholders typically own the fit-out of the hotel (if paid for), including furniture, floor coverings bar fit-out, partition walls, poker machines etc. Leasehold owners can claim depreciation for any building works they have paid for, along with all of the plant and equipment assets they own within the establishment.

• When should a hotel owner get a depreciation schedule?

  A depreciation schedule schedule allows for hotel owners to maximise the tax deductions for depreciation available to them, and improves the cash flow of the business each year. Each year a hotel owner does not have a schedule, they are missing out on tens of thousands of tax deductions that can make a significant difference to any tax liabilities. The best time to get a report completed is straight away.

  Benefits during the acquisition process

  During the acquisition process, or as soon after purchase as possible is the ideal time to have a depreciation schedule completed. The process of having a depreciation schedule completed now will assist in the dissection of asset pools and the valuation of assets within the contract of sale. Having the assets valued accurately as this time can have flow on benefits for many years – read here to learn more about our advice of managing asset values versus goodwill in the contract of sale.

  After any major refurbishment

  This is the ideal time to have any exiting schedules reviewed to ensure assets are valued and scrapped for maximum effect, and effectively dealt with going forward. At this stage also, new acquisition works can be accurately captured and forecasted for maximum future claims.

  Learn more about maximising depreciation when renovating a hotel.

  Anytime if you discover you don’t have a depreciation schedule, or you don’t have a good one

  The great news here is that even if you have been operating for some time without a quality depreciation schedule, you can back claim for tax deductions that have not been claimed in previous years (typically up to 4 years). Whilst there is some cost in having a schedule done and amending previous tax returns, we have only seen the benefits far outweigh the costs with hotel owners typically claiming tens of thousands of dollars in deductions that were previously unclaimed. This can provide an immediate cash flow boost to any business in the way of a tax refund (or applied as a credit against any ATO debts).

• Who is the best person to complete a depreciation schedule for a hotel owner?

  Pubs are unique in terms of building costs, and included industry specific assets. The build and fit-out of a hotel is very different to a residential house or a generic commercial office building.

  An experienced, specialist quantity surveyor is the best person to complete a depreciation schedule for a hotel owner. A quantity surveyor will be able to estimate historical construction dates and costs, as well as value industry specific plant and equipment assets. This is particularly important within the industry as hotels undergo regular upgrades and transformations to adapt to consumer tastes and preferences. All of those historical and new works must be assessed, costed and accounted for accurately in order to maximise the tax deductions available.

  Accountants are not able or qualified to cost historical building works or value plant and equipment assets.

• How much can a hotel owner expect to claim in tax deductions?

  Deductions can vary significantly, dependent upon the size and fit-out of the hotel. A smaller, regional hotel with a modest fit-out could expect to see annual deductions in the tens of thousands of dollars. A substantial CBD hotel with quality fit-out and inclusions should see tax deductions valuing hundreds of thousands of dollars across the first few financial years.

• How much does a depreciation schedule for a hotel cost?

  To smart hotel owners, engaging a the right quantity surveyor, a depreciation schedule is an incredible investment. A depreciation schedule for a hotel can cost from a few thousand dollars for a simpler hotel, up to around $10,000 for a substantial establishment that includes accommodation, restaurants etc.

  But the return on investment is huge with most schedules reporting hundreds of thousands of dollars in deductions in just the first few years.