Office fitouts bring a range of benefits for a company, from a boost in brand image and staff morale from working in a new space, to the adaptability and flexibility of a contemporary office.
But there can also be a financial advantage for the investment in a new fitout, through office fitout depreciation.
These investments in the building or interiors are expenses that can be claimed from the total business revenue when calculating the total taxable income. The annual reductions in taxable income from a depreciating asset can improve the bottom line because businesses only pay tax on the lower amount.
However, as with all tax measures, deductions must be calculated correctly in order to avoid errors or possible non-compliance.
Capital works deductions
In Australia, the Australian Tax Office deems an office fitout as capital work. This is the improvement, extension or alteration to a building or structure that produces income over time.
This deduction also extends to leasehold improvements, including shop fitouts, and structural enhancements like sealed driveways and retaining walls.
Under the Division 43 of the Income Tax Assessment Act, deductions must be for construction costs from the financial year in which it was spent.
How to use office fitout deductions
For property owners, office fitout deductions are generally claimed over a period of 25 or 40 years. This depends on when the construction began, the type of capital and how it is used.
This means the total investment can be depreciated at a rate of 4 per cent or 2.5 per cent each year.
To claim deductions, individuals and businesses must keep detailed records of their eligible expenses. Proper professional advice and documentation is crucial in the event of an audit.
In cases where determining actual costs is challenging, estimates from a quantity surveyor or a qualified professional are acceptable. You can claim the full estimated cost in the year that the expense was paid.
What is an office fitout for depreciation?
For commercial property, these items include carpet and flooring, desks, blinds, shelving, and equipment such as kitchen machinery and ovens.
Other internal systems such as hot water systems, air conditioning, and fire control systems can also be claimed as plant.
The tax laws set out the period of time that each item can be depreciated.
Over the years there have been multiple legal actions that have defined what is an office fitout for depreciation.
A specific Taxation Ruling delves into the intricacies of what is and what isn’t considered “plant and equipment” within a fitout. These generally removable or mechanical items can generally be depreciated over the time that they are used.
They provide the example of a mediaeval-themed restaurant with flame-torch down lights, which were deemed not to be plant as they were not required for the premises function and merely for show.
Likewise, a fibreglass replica of a cave fixed to the side of a camping shop was not considered to be functional and could not be claimed as a plant.
Benefits of an office fitout
New office fitouts can have a significant positive financial impact on the workplace, in addition to the depreciation benefits. While the initial investment in a new office fitout can be significant, it can lead to long-term cost savings. Energy-efficient designs and the use of sustainable materials within the interior design can help to reduce operating costs over time.
When the use of natural light is maximised, such as at this fitout at Ann Street, there can be less use of lighting, heating and cooling systems, improving the energy efficiency overall.
Incorporating durable materials in the fitout will also be more cost-effective in the long term and lower the requirement for costly maintenance, repairs and replacements for fittings and fixtures.
Please note that this article is general information and subject to change, and it is recommended you consult your accountant or tax professional.
RAW Commercial Projects have been delivering quality office fitouts for clients around southeast Queensland for seven years. Find out more about our services and recent projects.
