Tax changes affecting property

Fitout allowances encompass wide range of building services assets such as lifts, air conditioning systems, plumbing, electrical reticulation, floor coverings and partitioning. Properties on which fitout depreciation can be claimed include office, retail and industrial buildings, hospitals and other convalescent complexes and guest accommodation including hotels, motels, serviced apartments and camping grounds.

According to John Freeman, depreciation specialist and director of Bayleys Valuations, purchasers wishing to claim depreciation on commercial and industrial property have two options:

1) Take 15% of the tax book value of property, designate it as fitout and depreciate it at rate of 2% per annum.

2) Utilise depreciation schedule based on registered valuation which segregates structure and fitout. This will set an annual depreciation rate for individual fitout items. Where no such schedule exits for property, then depreciation segregation valuation will need to be undertaken.

An analysis of eight fitout depreciation segregation valuations undertaken recently by Bayleys Valuations shows that from 24% (for warehouse) to 55% (for hotel) of the total depreciation allowances claimed from combination of building and fitout allowances were for fitout. In general terms, the fitout depreciation being achieved annually from purchase date onwards for these buildings is between 9% and 12%.

Therefore significant depreciation allowances can still be claimed by companies particularly if option 2 is followed. Freeman says building fitout assets wear out and require regular replacement so claiming your full tax depreciation entitlement on such assets is also sound business practice.

• For further information contact John Freeman or phone 04 499 6414 or 021 427 054.

New GST rules

Commercial and industrial property transactions between GST registered businesses are now zero-rated (ie, do not attract GST), provided the property is to be used by the purchaser for business subject to GST, such as development, commercial renting or using the property as business premises. The level of occupancy of the property is no longer relevant.

The new rules require vendors to seek information from buyers, including GST registration details and confirmation the property will be used for GST taxable purpose. So long as this is done, no GST liability can arise for the vendor. Purchasers providing inaccurate or misleading information, however could be liable for the GST.

• For more information www.deloitte.com

 

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