Maximise the value of plant and equipment when purchasing
In most cases (unless your specialist accountant advises otherwise) you will want to ensure the value of hospitality assets known as plant and equipment assets are maximised when you are purchasing. Do this by either leaving the contract values for plant and equipment and goodwill blank, or ensure that you have a depreciation schedule completed pre-purchase, where the assets are all revalued and new effective lives reassigned.
Remember, the vendor will have already been claiming depreciation (aggressively if they have a good quantity surveyor and accountant) and asset values as recorded by them will likely be recorded at the minimum value, leaving less depreciation (tax deductions) claimable for the new owner.
Whilst the ATO does prescribe effective lives for commercial assets, quantity surveyors are qualified to revalue assets and ascribe new effective lives each time an asset changes hands. This means that a quantity surveyor is able to value an asset based on its actual condition and future use and attribute new values and effective lives, potentially increasing your annual depreciation claims to more accurate values.
Ensure you have a detailed inventory of all plant and equipment assets and ensure that their values effective lives have been properly assessed by an expert
We often find that inventory lists are incomplete from the beginning or, have not been updated and maintained as assets are disposed of, replaced and added. A quantity surveyor will inspect your venue and create a detailed inventory list, ensuring assets are assigned a correct value and effective life, guaranteeing that your tax deductions for depreciation are maximised every year.
Maximise deduction opportunities when renovating or refurbishing
Many hospitality owners are not aware of the massive deductions that are available throughout the refurbishment process, particularly when disposing of furnishings that were part of the original purchase. Items that are disposed of during refurbishment can qualify for “scrapping”, which means the total residual value of things like carpet, blinds, light shades, partition furniture, benches, sinks, toilets etc, can all be written off in a lump sum in the financial year in which they are discarded.
To maximise this opportunity, make sure you have a detailed inventory list, and ensure that accurate values have been attributed to the assets as mentioned in the points above. It is common for us to complete depreciation schedules for scrapped assets that detail hundreds of thousands of dollars in immediate write-off deductions for items that are thrown out in a hotel refurbishment.
Keep in mind that these are all calculated deductions that are only claimable with a detailed depreciation schedule from a qualified quantity surveyor.
Depreciation deductions are available for freehold and leasehold operators
Whether you own the building or not, significant deductions are claimable for all hospitality operators. All operators are entitled to claim for operating assets, as well as any fit-out (including construction) which they have paid for themselves.
Freehold owners can additionally claim for qualifying capital allowance – depreciation of the building itself, whether they have purchased second- hand, constructed brand new, or a combination of both.
Ensure your depreciation schedule has been prepared by an experienced industry specialist
There are a number of quantity surveyors that complete depreciation schedules for investment properties in Australia, but few are specialists in assessing and completing depreciation schedules for commercial properties, particularly large-scale commercial properties like hotels, that may also include function areas and accommodation.
Our specialist commercial team, comprised of Director Mark Wilkins and Senior Consultant Alex Konjarski have a combined 42 years of industry experience, specialising in commercial building and asset depreciation.
We have completed work for owners of small hospitality businesses, right through to large venues in CBD’s, capital cities and regional locations for some of Australia’s most accomplished hotel groups.
Contact us today on 1300 922 220 or email alexk@capitalclaims.com.au for a complimentary consultation regarding your hospitality venue.
Case Studies
1.Large Country Pub leasehold purchased for $1.9 million and freehold purchased for $3.7 million
- Tom’s company owns a large country pub, located in Wagga Wagga;
- The pub has had multiple updates and refits over the years prior to purchase in 2020;
- The large commercial property is freehold & leasehold, has multiple bars, bottle shop, gaming facilities, bars and accommodation.
The figures:
Tom engaged Capital Claims Tax Depreciation to prepare a tax depreciation schedule. In the first year Tom claimed $135,557. Over the first full five financial years Tom claimed $597,037 in tax depreciation deductions. Total tax depreciation claimed for life of report $1,188,521.
2. Inner- City Pub purchased for $10 million
- Nick’s company owns an Inner-City pub, which was purchased for $10 million;
- The Inner-City Pub has had multiple updates and refits over the years prior to purchase in 2021;
- The large commercial property is freehold & leasehold, has multiple bars, gaming facilities and food.
The figures:
Nick engaged Capital Claims Tax Depreciation to prepare a tax depreciation schedule. In the first year Nick claimed $228,397. Over the first full five financial years Nick claimed $941,117 in tax depreciation deductions. Total tax depreciation claimed for life of report $1,533,560.
