A commercial finance specialist says every year many hotel owners pay tens of thousands of dollars more tax than necessary by failing to effectively claim capital allowance and depreciation.
Regular accountants may not aware of the full benefits that can be deducted at hotel businesses, according to Mark Wilkins, director of Capital Claims Tax Depreciation, which specialises in quantity surveying and hotel depreciation.
“We regularly see the case where a hotelier changes accountant and the new accountant discovers their client hasn’t been effectively claiming these deductions in the past.
“Sometimes the hotelier doesn’t have a depreciation schedule, it’s of poor quality, or it is older and hasn’t been updated since refurbishment.”
Tax law outlines that each year both freehold and leasehold hotel owners can claim tax deductions, for depreciation of their structural property and their plant and equipment items, reducing taxable income and tax payable by the business.
Freeholders can typically claim depreciation on the structure of the hotel and key infrastructure, such as A/C, refrigeration etc. Leaseholders can typically claim on the fit-out, including flooring, furniture, bar, kitchen, gaming room and machines, and any building works they perform.
“Hoteliers often assume their accountant is taking care of it, but we see many cases where tens of thousands of dollars in annual deductions are left unclaimed for a number of years,” says Wilkins.
“A tax depreciation schedule is one of the most important tools your accountant can use when preparing your yearly financials. It will clearly outline what you can claim in depreciation each financial year when lodging with the ATO.
“Annual deductions for hotels can range from tens of thousands of dollars per annum, to hundreds of thousands of dollars for really large establishments.”
The finer points of the laws become relevant to any buyer, and any operator undertaking their own works (case study below), and may be claimable long after the event.
“For a hotelier that hasn’t been claiming, you can back claim the deductions – for many, this has delivered a substantial cash flow boost to the business.
“Having a quality specialist depreciation schedule for your hotel is a small investment you can make to substantially increase cash flow quickly and easily.”
CASE STUDY
In 2016 new owners bought a 1950-built country pub for $1.5 million. Capital Claims found $316,468 in unclaimed tax deductions for capital allowance and depreciation.
They were able to back-claim for deductions not claimed in previous years, resulting in a tax refund of over $80,000.
Deductions for future years have been maximised and reported in their depreciation schedule for 40 years. Annual deductions over the next five years average $30,000.