Commercial building depreciation & Commercial property tax

Commercial properties typically offer more financial reward than residential properties from return and  a tax perspective for example with regards to commercial building depreciation, but there can be higher risks. It is also important to remember that there are different facets for managing different types of commercial properties.
What is commercial property?

Essentially a commercial property is a building used for commercial enterprise. This could be:

  • An office (single floor or suite in larger building)
  • An office building
  • Light industrial unit, warehouse or showroom
  • Heavy industrial premises
  • Retail building (shop)
  • Shopping Centres
  • Apartment buildings
  • Mixed use buildings (combination of uses eg: retail, office, apartment)
  • Project for development (a housing complex for residence or retirement)
  • Tourism enterprise

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Do you own commercial property?

Are you planning to get into commercial real estate?

Talk to Gerard first: setting up the correct structures from a commercial property tax and asset protection  perspective is best done before you buy!

commercial property tax

What is the best entity (ownership option)?

Multiple factors can affect the entity you choose the property ownership to be held in. This is where obtaining professional advice before you take on any commitment pays dividends. Some of the possible options are:

  •  Individual
  • Partnership
  • Company
  •  Trust

Buying Tips

Again, ensure you seek professional advice. You may be subject to GST liabilities – and this can change depending on whether you are buying/selling a taxable activity (business), whether the property is tenanted and/or the property is being sold subject to the tenancy or any other arrangement.
It is also crucial to understand the terms and conditions of a current tenant’s lease (if any).

Selling Tips

One important thing to consider is whether the profit from the sale of the property is taxable in your situation. This is dependent upon your investing and trading intentions and will need to be discussed with your accountant. For GST liabilities, again you will need to seek professional advice.

What are the Tenant (Lessee’s) responsibilities?

A benefit to owning a commercial property is that the onus for certain expenses fall within the Lessee’s area of influence. These can include:

  • Repairs/decoration
  • Power, Water (utilities)
  • Rates
  • Insurance
  • Body Corp fees

What are the Landlord (Lessor’s) responsibilities?

The Landlord (Lessor) is responsible to ensure compliance with the Building Act, Health & Safety Act and any other governing regulations.
The terms of the lease will normally also dictate the Landlord’s responsibilities, and it is important to understand any terms of an existing lease prior to the purchase of the building.
The Landlord may also responsible for reinstatement of leased space in between tenancies, dependent upon any lease terms.

Why should I invest in Commercial Property?

There are benefits to investing in commercial property, some of these can include:
• Income potential
• Higher rental yields
• Less outgoings
• Longer leases and more reliable tenants
• Rent increases written in at agreement regarding amounts, throughout the term of the tenancy
• Interest on loans, unlike residential property investment, is deductible

What should I be aware of if I invest in Commercial Property?

As mentioned earlier, there are potential risks that any investor should be aware of prior to purchasing. These may include:
• Higher risk of vacancy due to specificity of premises
• Sensitivity to changes in the economy
• The value of the property is tied to the strength of the lease, making a good tenant an asset to your business

Summary on commercial building depreciation and commercial property tax

Commercial property, like any investment, has its benefits.
We recommend that prior to any commitment you research the opportunity to ensure that it is the right move for you and your investment portfolio. As with any venture, we would recommend preparedness for the long and short term implications.
A consultation with an accountant is a great place to start. To arrange a consultation with Citywide Accountants, simply click here, complete your details, and we will be in touch.

A consultation with an accountant is a great place to start. To arrange a commercial building depreciation & commcercial property tax consultation with Citywide Accountants, simply click here, complete your details, and we will be in touch.