Amid a wave of rapidly executed renovations in response to pandemic conditions, many hotel owners are missing out on claiming their available depreciation deductions, according to an industry specialist.
Hoteliers and commercial property owners most commonly underclaim on depreciation because they simply do not know about it, or they have engaged someone not proficient in the intricacies of the laws, perhaps their regular accountant.
Owners are entitled to claim commercial property depreciation under two different categories: Division 40 and Division 43, but those who have completed fit-outs and removed and disposed of what was there are also entitled to claim “scrapping”.
Division 40 (Assets/Plant and Equipment) refers to electronics, soft furnishings and any item that can be removed easily, such as ice machines, lighting, cool room panels, beer systems, CCTV, EGMs, glasswashers, kitchenware, etc. Depreciation can be claimed for brand-new and second-hand assets.
Division 43 (Building/Construction/Capital Works) refers to bricks, framing, weatherboards, hard landscaping, pavers, concrete, walls, foundation, piers, storm water, roof tiles and fencing.
Fit-outs are entitled to claim for the residual value that is left in the assets that have been thrown out. Many items are geared to be depreciated over decades, such as tiling. The fact commercial properties such as hotels see semi-regular new fit-outs can easily lead to unclaimed scrapping deductions.
Capital Claims Tax Depreciation reports it has already completed many tax depreciation schedules for hotel owners since the start of the 2021 financial year, and that results can be in the hundred-of-thousands of dollars.
The company offers the example of a large country hotel purchased in 2018 – the leasehold for $1.9 million and building freehold for $3.7 million, purchased through separate entities.
The hotel and interior fit-out have had multiple updates and refits over the years, proving entitled to $135,557 in deductions in the first year and a total of $597,037 over the first five years, representing 10.7 per cent of the total purchase price.
Capital Claims offers a range of commercial property services, and provides estimates and depreciation schedules for freehold owners.
Principal Mark Wilkins says publicans often don’t consider what is already there before making changes, potentially reducing their depreciation opportunities.
“With the number of COVID-inspired renovations taking place, some of them temporary changes involving capital works, pub owners would benefit from getting a professional assessment of their depreciation entitlements.”