A major tax difference between commercial and residential buildings is that you can claim depreciation on commercial buildings.
Depreciation for buildings was removed across the board in 2010, then reinstated – but only for commercial buildings – as part of a 2020 emergency pandemic support package.
Residential landlords cannot claim depreciation, but there are some grey areas where it’s not immediately obvious whether a building is residential or not. Inland Revenue has recently released a fact sheet to help you find the right depreciation rate for your building.
Does your property qualify as non-residential?
Here are the criteria according to the Fact Sheet:
Claiming depreciation can save you a considerable amount. For instance, IR provides an example of a motel building with a tax book value of $3 million.
The depreciation rate of 2% means the company can claim a $60,000 deduction, paying $16,800 less tax. If your building is non-residential, you can also depreciate the fit-out.
Key points
What if you make improvements to the building?
If you improve your building, you must treat the improvement as a separate item of depreciable property in the first year.
Can you depreciate the fit-out in your building?
Depending on the nature of the building and the nature of the fit-out, some fit-out of a building is separately depreciable.
You can depreciate the fit-out if it is in a wholly non-residential building. Fit-out is also sometimes depreciable in a mixed-use building.
The tax treatment of fit-out is summarised below through Inland Revenue’s Fact sheet
Questions about depreciation?
We can answer your questions about depreciation on your building, your fit-out or various tax deductions on any properties. Get in touch, we’d love to hear from you.
