We all know that property is a significant investment.
Whether you are buying or renting, it can be expensive to maintain your office and retail space.
One way to help you save on tax is through depreciation.
Depreciation is a tax deduction that can help offset your income, which means you could be saving big.
This article will give you the information and guidance you need so that you can claim your office and retail fit-outs as assets and take advantage of this excellent opportunity to help reduce taxation.
What Assets are Eligible for Tax Depreciation?
Before reading the claiming depreciation process, you should first determine whether your asset is eligible for tax depreciation. Keep in mind that only the building’s value is depreciated, not the land itself.
Below are the criteria observed in several jurisdictions:
A Taxpayer Owns the Asset
A taxpayer must have ownership of the property and be responsible for its usage to claim depreciation.
The Asset is Used in Business
To qualify for depreciation, you must use the asset in income-generating activities. Hence, those assets intended for personal use are not eligible for depreciation.
The Asset Has a Determinable Useful Life
The asset must have a determinable useful life so that the assessor can calculate the asset’s depreciation value.
One can estimate how long the operation can continue until it is no longer producing economic benefits.
The Asset’s Useful Life Exceeds One Year
The asset must have a useful life of more than one year to qualify for depreciation since the owner can only claim depreciation for long-term investments.
1. You Need A Good Understanding of Tax Law and Construction Costs
To be able to effectively claim your office fitout or retail fitout as a depreciation asset, you first need to understand some Understanding key elements of tax law and construction costs.
Firstly, an understanding of what constitutes a depreciable building is required.
A legal property definition only includes bricks and mortar buildings; it does not include fixtures such as air conditioning units or kitchen appliances (unless built into the walls).
If you don’t want to go through the hassle of understanding all this information, you can hire a quantity surveyor. These are qualified individuals who understand tax laws and construction costs, who can come up with a depreciation schedule for your office or retail fitout.
2. Calculate the Depreciation of the Asset
Tax authorities usually give comprehensive guides to taxpayers on the depreciation rules.
“You can calculate your office or retail fit-out depreciation by using accumulated depreciation methods (e.g., double declining methods) or a straight-line method.”
The straight-line method is the most commonly used one; hence, it will be explained further.
For the straight-line method, you need to determine how much the asset cost when it was acquired and then deduct its residual value (i.e., any scrap value).
The difference between these two figures will then be divided by the projected useful life of the asset.
The quotient will then be deducted from your taxable income, which could mean significant savings on your taxes.
Remember that methods applied to calculate depreciation expense for accounting and tax purposes do not coincide with each other.
That’s why it’s better to hire a professional regarding this to have a more accurate result.
3. Claim your Depreciation Deduction
After you have determined and calculated your office or retail fit-out depreciation based on the tax authorities’ rules, it’s time to claim that value as a deduction.
Claiming depreciation deduction is done by an amendment to your income tax return for the year you acquired the asset (e.g., when construction or renovation work was finished).
However, ensure that all required information in the form is complete before filing it with the taxation office.
Before You Go
Depreciation deductions are a big help for business owners who are looking to save money on their taxes.
However, you must keep in mind that the value of your deduction will be affected by how much you spend, what type of asset it is, the date when it was installed, whether or not it is owned by a business or not, how long it has been used in operations, etc.
If you want to make sure that these deductions are claimed correctly, then consult with a qualified Quantity Surveyor who can provide accurate calculations and schedules before filing your tax returns.
Additionally, ensure that all forms needed for claiming depreciation deductions are complete with accurate information before filing them with a taxation department since it may cause an unnecessary delay if not done correctly from the start.
