Tax Depreciation For An Industrial Property Tax Depreciation For An Industrial Shed Constructed In 2020

Case Study

Commercial Tax Depreciation


The details

 

  • The property contains an industrial shed constructed in 2020. The land comprises of 5,781m² with full access control, extended security, and infrastructure to fully support business operations.
  • The building was completed in 2020 currently managed through an owner-occupied lease.
  • The income for the building on an annual basis is estimated at gross turnover $190,800 (NSA of 1060 m² area x ARR of $180.00/m²). The expenses for the operation estimated at 65% (-$66,815) which results in a net profit before tax of $123,985.

 

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 & Division 43 tax depreciation claims

First year:              $684,931

Over 40 years:      $6,441,052

The tax depreciation for total operation, consisting of Division 40 (P&L) and Division 43 (B&M), total over a period of 40 years.

 

Cash flow benefit

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

  • Small Business: $188,356
  • Prime Cost: $40,289
  • Diminishing Value: $10,385

 

5 Year Cashflow (Small Business Method)
No Depreciation Small Business Depreciation
Net Profit Tax @ 27.5% Net Cashflow Net Profit Small Business Depreciation Taxable Profit Tax @ 27.5% Net Cashflow
Year 1 123,985 (34,096) 89,889 123,985 (684,931) (560,946) 154,260 278,245
Year 2 123,985 (34,096) 89,889 123,985 123,985 (34,096) 89,889
Year 3 123,985 (34,096) 89,889 123,985 123,985 (34,096) 89,889
Year 4 123,985 (34,096) 89,889 123,985 123,985 (34,096) 89,889
Year 5 123,985 (34,096) 89,889 123,985 123,985 (34,096) 89,889
Total 619,925 (170,479) 449,446 619,925 (684,931) (65,006) 17,877 637,802
Benefit Year 1 188,356
5 Years 188,356

 

5 Year Cashflow (Prime Cost Method)
No Depreciation Prime Cost Depreciation
Net Profit Tax @ 27.5% Net Cashflow Net Profit Prime Cost Depreciation Taxable Profit Tax @ 27.5% Net Cashflow
Year 1 123,985 (34,096) 89,889 123,985 (29,301) 94,684 (26,038) 97,947
Year 2 123,985 (34,096) 89,889 123,985 (29,301) 94,684 (26,038) 97,947
Year 3 123,985 (34,096) 89,889 123,985 (29,301) 94,684 (26,038) 97,947
Year 4 123,985 (34,096) 89,889 123,985 (29,301) 94,684 (26,038) 97,947
Year 5 123,985 (34,096) 89,889 123,985 (29,301) 94,684 (26,038) 97,947
Total 619,925 (170,479) 449,446 619,925 (146,505) 473,420 (130,191) 489,735
Benefit Year 1 8,058
5 Years 40,289

 

5 Year Cashflow (Diminishing Value Method)
No Depreciation Diminishing Value Depreciation
Net Profit Tax @ 27.5% Net Cashflow Net Profit Diminishing Value Depreciation Taxable Profit Tax @ 27.5% Net Cashflow
Year 1 123,985 (34,096) 89,889 123,985 (37,762) 86,223 (23,711) 100,274
Year 2 123,985 (34,096) 89,889 123,985 123,985 (34,096) 89,889
Year 3 123,985 (34,096) 89,889 123,985 123,985 (34,096) 89,889
Year 4 123,985 (34,096) 89,889 123,985 123,985 (34,096) 89,889
Year 5 123,985 (34,096) 89,889 123,985 123,985 (34,096) 89,889
Total 619,925 (170,479) 449,446 619,925 (37,762) 582,163 (160,095) 459,830
Benefit Year 1
5 Years

It is clearly very important to determine the correct method to be used upfront as it may have a major cash flow impact on the business from year one where tax depreciation claims apply. This positive cash flow impact would not have been possible if the owner did not undertake this tax deprecation assessment.

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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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Ernest van Zyl
Manager Property Advisory Services
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Lismore
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Valuer
Albury
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Client Services Team Leader
Sydney Residential
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Port Macquarie
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Port Macquarie
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Newcastle
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Tamworth
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Senior Valuer
Sydney
Emmanuel Ergos
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Sydney
Justine Franklin
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Albury - Wodonga
Adam Scerri
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Amy Frankel
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Port Macquarie
Lara Watts
Valuer
Bundaberg
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Valuer
Brisbane
Justin De Pinto-Smith
Valuer
Mackay
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
Henry Brown
Director
Brisbane
Richard Holles
Senior 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
Director
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
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Associate Director
Melbourne
Nick Funnell
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Rosheen Stephenson
Regional Director
Gippsland
Mark Pastor
Associate Director
Melbourne
Damien Stone
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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 – Property and Advisory
Perth
Nathan King
National Director – Advisory, State Government & Projects, State Director – WA
Perth
Ernest van Zyl
Manager Property Advisory Services
James Morrell
Senior Valuer
Lismore
Angus Cooke
Valuer
Inverell
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
Director
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
Lara Watts
Valuer
Bundaberg
Adrian Marks
Valuer
Brisbane
Justin De Pinto-Smith
Valuer
Mackay
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
Henry Brown
Director
Brisbane
Richard Holles
Senior 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
Director
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
James Somlai
Associate Director
Melbourne
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 – Property and Advisory
Perth
Nathan King
National Director – Advisory, State Government & Projects, State Director – WA
Perth

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