Case Study: Tax Depreciation

Four-star boutique 40 room motel constructed in 1960’s

Commercial Tax Depreciation

The details

  • The four-star boutique motel was constructed in 1960’s and has since been renovated and refurbished.
  • The 1,340 m² motel property is in New South Wales and managed on-site by the lessee.
  • The property is leased and therefore only Division 40 P&E apply for tax depreciation
  • The motel building is four-storeys and consists of 40 rooms, 36 parking facilities and onsite amenities including spas, kitchen, managers residence, an indoor/outdoor pool and bike hire facilities.
  • The property generates a gross annual revenue of approximately $1,800,000 p.a, including rent of $300,000. Expenses are estimated at $720,000. Net Profit estimated at an average of $780,000 p.a.
  • The total leasehold valuation of the property is $2.6 million (adjusted), based on a yield of 30%.

 

The approach

In this tax depreciation example, the quantity surveyor applied three methods in the calculation of total depreciation – Small Business (SB), Prime Cost (PC) and Diminishing Value (DV) methods respectively.

Differing criteria, considerations and requirements apply to each method. Based on the data a decision on the best method to be consistently applied for tax depreciation is determined by the accountant in conjunction with the client, based on their circumstances.

 

The outcome

Claimable tax depreciation

In this example the Small Business method delivers the highest upfront tax depreciation and cash flow benefits.

 

Total Small Business – Division 40 tax depreciation claims

First year:              $134,516

Over five years:    $212,982

Over 40 years:      $237,774

This tax depreciation claim can be offset against profit before tax. The depreciation schedule is a 40-year schedule however we have only highlighted the first five years in the tables below.

 

Cash flow benefit

The cash flow benefit calculated over a five-year period comparing the three methods are:

  • Small Business: $58,570
  • Prime Cost: $41,834
  • Diminishing Value: $37,333

 

5 Year Cashflow (Small Business Method)
No Depreciation Small Business Depreciation
Net Profit Tax @ 27.5% Net Cashflow Net Profit SB Deprn Taxable Profit Tax @ 27.5% Net Cashflow
Year 1 780,000 (214,500) 565,500 780,000 (134,516) 645,484 (177,508) 602,492
Year 2 780,000 (214,500) 565,500 780,000 (30,978) 749,022 (205,981) 574,019
Year 3 780,000 (214,500) 565,500 780,000 (21,683) 758,317 (208,537) 571,463
Year 4 780,000 (214,500) 565,500 780,000 (15,179) 764,821 (210,326) 569,674
Year 5 780,000 (214,500) 565,500 780,000 (10,626) 769,374 (211,578) 568,422
Total 3,900,000 (1,072,500) 2,827,500 3,900,000 (212,982) 3,687,018 (1,013,930) 2,886,070
            Benefit Year 1 36,992
              5 Years 58,570

 

5 Year Cashflow (Prime Cost Method)
No Depreciation Prime Cost Depreciation
Net Profit Tax @ 27.5% Net Cashflow Net Profit PC Deprn Taxable Profit Tax @ 27.5% Net Cashflow
Year 1 780,000 (214,500) 565,500 780,000 (16,245) 763,755 (210,033) 569,967
Year 2 780,000 (214,500) 565,500 780,000 (37,156) 742,844 (204,282) 575,718
Year 3 780,000 (214,500) 565,500 780,000 (35,689) 744,311 (204,686) 575,314
Year 4 780,000 (214,500) 565,500 780,000 (31,988) 748,012 (205,703) 574,297
Year 5 780,000 (214,500) 565,500 780,000 (31,045) 748,955 (205,963) 574,037
Total 3,900,000 (1,072,500) 2,827,500 3,900,000 (152,123) 3,747,877 (1,030,666) 2,869,334
            Benefit Year 1 4,467
            5 Years 41,834

 

5 Year Cashflow (Diminishing Value Method)
No Depreciation Diminishing Value Depreciation
Net Profit Tax @ 27.5% Net Cashflow Net Profit DV Deprn Taxable Profit Tax @ 27.5% Net Cashflow
Year 1 780,000 (214,500) 565,500 780,000 (29,030) 750,970 (206,517) 573,483
Year 2 780,000 (214,500) 565,500 780,000 (27,214) 752,786 (207,016) 572,984
Year 3 780,000 (214,500) 565,500 780,000 (35,478) 744,522 (204,744) 575,256
Year 4 780,000 (214,500) 565,500 780,000 (25,891) 754,109 (207,380) 572,620
Year 5 780,000 (214,500) 565,500 780,000 (18,145) 761,855 (209,510) 570,490
Total 3,900,000 (1,072,500) 2,827,500 3,900,000 (135,758) 3,764,242 (1,035,167) 2,864,833
            Benefits Year 1 7,983
            Benefits 5 Years 37,333

 

Why choose Acumentis

Have one point of contact for all your client’s property needs.

Knowledge and experience

Our registered team of professionally certified valuers are experts across commercialresidential and rural and agribusiness property types. We know what depreciable items to look for ensuring that you get a comprehensive ATO approved depreciation schedule prepared by our certified Quantity Surveyors.

Value

We’ll provide you with one tax depreciation schedule that lasts up to 40 years of claim and the fee is 100% tax deductible. We can also undertake a retrospective tax depreciation schedule if you haven’t been claiming deductions so that you don’t miss the tax benefits.

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Your team of
tax depreciation experts

State contacts
Ernest van Zyl
Manager Property Advisory Services
Tom McDouall
Regional Director
Newcastle
Heath Craft
Valuer
Albury
Maria Ergos
Client Services Team Leader
Sydney Residential
Gregory Jordan
Valuer
Port Macquarie
Jack Prosser
Valuer
Port Macquarie
Louise de Savery
Senior Valuer
Newcastle
Harry Morrow
Valuer
Tamworth
Simon Mandile
Senior Valuer
Sydney
Emmanuel Ergos
Senior Valuer
Sydney
Justine Franklin
Valuer
Albury - Wodonga
Adam Scerri
State Director - Residential
Sydney
Amy Frankel
Regional Director
Port Macquarie
Matt Wilson
Senior Valuer
Cairns
Sarah Banner
Director - Valuations | Residential
Brisbane
Clancy Miller
Valuer
Townsville
Paul Krause
Senior Valuer
Mackay
Jack Macdonald
Senior Valuer
Roma
Ernest van Zyl
Manager Property Advisory Services
Thomas Hewitt
Associate Director
Brisbane
Henry Brown
Associate Director
Brisbane
Richard Holles
Senior Valuer
Toowoomba
Hannah Cooley
Valuer
Toowoomba
Zac Beveridge
Valuer
Toowoomba
Wayne Airey
Associate Director
Sunshine Coast
Will Smallacombe
Senior Valuer
Cairns
Alexandra Doneley
Senior Valuer
Emerald
Geoff Duffield
State Director Residential QLD
Brisbane
Jany Pezard
Director - Valuations
Sunshine Coast
Gareth Turner
Senior Valuer
Brisbane
Jim Lyons
Director Valuations
Brisbane
Lachlan Dunsdon
National Director Rural & Agribusiness
Brisbane
Mark Robins
State Director SA
Adelaide
Leon Sleiters
Valuer
Hobart
Harry Chapman
Valuer
Launceston
Harry Chapman
Valuer
Launceston
Tyrone Tweddle
Valuer
Hobart
Joe Stansfield
Regional Director - Tasmania (North)
Launceston
David Duffield
Regional Director - Tasmania (South)
Hobart
Nick Funnell
National Director - Asset Advisory
Melbourne
Rosheen Stephenson
Regional Director
Gippsland
Mark Pastor
Associate Director
Melbourne
Damien Stone
State Director Residential Victoria
Melbourne
Felicity Graham
Senior Valuer
Bunbury
Brandon Prince
Valuer
Perth
Curtis Borszeky
Valuer
Perth
Rachel Kendall
Valuer
Mandurah
Michael Sinclair
Valuer
Perth
Yury Bonne
Valuer
Perth
Dean Munns
Associate Director
Perth
James Sholdas
Associate Director Valuations
Perth
Tom O’Sullivan
Associate Director Valuations
Perth
Kate Bingham
Associate Director
Perth
Tony Gorman
Director Valuations
Perth
Ben Lamers
Director Acumentis Advisory
Perth
Aaron Hughes
Regional Director
South West WA
Scott Robinson
Regional Director
Mandurah
Richard Graham
State Director Rural & Agribusiness WA
Bunbury
Mark Eaton
Regional Director
Albany
Damien Schifferli
Regional Director - South West WA
Busselton
Blake Lieschke
State Director Residential WA
Perth
Nathan King
National Director – Advisory, State Government & Projects, State Director – WA
Perth
Ernest van Zyl
Manager Property Advisory Services
Tom McDouall
Regional Director
Newcastle
Heath Craft
Valuer
Albury
Maria Ergos
Client Services Team Leader
Sydney Residential
Gregory Jordan
Valuer
Port Macquarie
Jack Prosser
Valuer
Port Macquarie
Louise de Savery
Senior Valuer
Newcastle
Harry Morrow
Valuer
Tamworth
Simon Mandile
Senior Valuer
Sydney
Emmanuel Ergos
Senior Valuer
Sydney
Justine Franklin
Valuer
Albury - Wodonga
Adam Scerri
State Director - Residential
Sydney
Amy Frankel
Regional Director
Port Macquarie
Matt Wilson
Senior Valuer
Cairns
Sarah Banner
Director - Valuations | Residential
Brisbane
Clancy Miller
Valuer
Townsville
Paul Krause
Senior Valuer
Mackay
Jack Macdonald
Senior Valuer
Roma
Ernest van Zyl
Manager Property Advisory Services
Thomas Hewitt
Associate Director
Brisbane
Henry Brown
Associate Director
Brisbane
Richard Holles
Senior Valuer
Toowoomba
Hannah Cooley
Valuer
Toowoomba
Zac Beveridge
Valuer
Toowoomba
Wayne Airey
Associate Director
Sunshine Coast
Will Smallacombe
Senior Valuer
Cairns
Alexandra Doneley
Senior Valuer
Emerald
Geoff Duffield
State Director Residential QLD
Brisbane
Jany Pezard
Director - Valuations
Sunshine Coast
Gareth Turner
Senior Valuer
Brisbane
Jim Lyons
Director Valuations
Brisbane
Lachlan Dunsdon
National Director Rural & Agribusiness
Brisbane
Mark Robins
State Director SA
Adelaide
Leon Sleiters
Valuer
Hobart
Harry Chapman
Valuer
Launceston
Harry Chapman
Valuer
Launceston
Tyrone Tweddle
Valuer
Hobart
Joe Stansfield
Regional Director - Tasmania (North)
Launceston
David Duffield
Regional Director - Tasmania (South)
Hobart
Nick Funnell
National Director - Asset Advisory
Melbourne
Rosheen Stephenson
Regional Director
Gippsland
Mark Pastor
Associate Director
Melbourne
Damien Stone
State Director Residential Victoria
Melbourne
Felicity Graham
Senior Valuer
Bunbury
Brandon Prince
Valuer
Perth
Curtis Borszeky
Valuer
Perth
Rachel Kendall
Valuer
Mandurah
Michael Sinclair
Valuer
Perth
Yury Bonne
Valuer
Perth
Dean Munns
Associate Director
Perth
James Sholdas
Associate Director Valuations
Perth
Tom O’Sullivan
Associate Director Valuations
Perth
Kate Bingham
Associate Director
Perth
Tony Gorman
Director Valuations
Perth
Ben Lamers
Director Acumentis Advisory
Perth
Aaron Hughes
Regional Director
South West WA
Scott Robinson
Regional Director
Mandurah
Richard Graham
State Director Rural & Agribusiness WA
Bunbury
Mark Eaton
Regional Director
Albany
Damien Schifferli
Regional Director - South West WA
Busselton
Blake Lieschke
State Director Residential WA
Perth
Nathan King
National Director – Advisory, State Government & Projects, State Director – WA
Perth

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