Depreciation can help you reduce fitout costs

Depreciation can help you reduce fitout costs

Are you moving premises? Or just thinking about updating an old, tired fit-out?

Planning your new office can be quite daunting, particularly if you’re trying to do so within a strict budget.

Whether you are moving to new premises, or simply refreshing an old fit-out, on top of all the other usual business costs such as insurance, staff overheads and (if you don’t own the building) rent, there will also be substantial costs involved in installing assets to fit-out the new space before you can open (or re-open) the doors for business.

What some business owners are often unaware of is that they are entitled to claim deductions in the form of depreciation for many of the assets installed during the fit-out of a property. The Income Tax Assessment Act 1997 allows you to claim deductions for the wear and tear of the plant, equipment and other items that you have had installed as part of an office fit-out once the lease starts.

Examples of common business assets installed during a fit-out include:

  • Internal walls
  • Carpets
  • Air-conditioning units
  • Firefighting equipment
  • Desks
  • Blinds
  • Shelving
  • Security systems

Each item should be depreciated based on its individual effective life. The ATO releases a ruling setting out the effective lives of various assets each year, and most people will tend to adhere to these ATO guidelines. However, you also have the option of choosing a different effective life of each asset being claimed.

This is where the lease agreement between you and the property owner can be very important. What is the original term of the lease? How many option periods are there? Is there a provision requiring a new fit-out at the end of each lease period or term? Does it contain a “make-good” clause? All of these questions can impact the effective life of an asset installed today, and they should be considered when determining the effective life of each asset.

Some assets will also entitle the owner to claim an immediate write-off or to add them to a low-value pool to increase deductions sooner if they meet certain requirements (both the business and the asset itself).

These deductions can be extremely beneficial to you in improving cash flow and reducing the annual costs of renting the property, and paying for the fit-out itself!