Commercial property offers a standout tax advantage many investors miss: you can claim
second-hand plant & equipment (Division 40), something residential investors generally can’t do on properties purchased after 9 May 2017. For business owners and commercial investors, that can translate into tens of thousands of dollars in extra after-tax cash flow, especially when fit-outs and equipment are involved.
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Commercial vs Residential Depreciation: The short version
Rule / Item | Commercial Property | Residential Property |
|---|---|---|
Division 40: plant & equipment (second-hand) | Claimable on eligible second-hand items | Not claimable if purchased after 9 May 2017 |
Capital works (building) write-off | Typically 2.5% p.a. if built from 17 Sep 1987 | Same rule applies, but overall benefits often smaller post-2017 |
Owner-occupier | Can claim depreciation | Owner-occupiers generally cannot claim |
Fit-out “scrapping” on demolition | Immediate write-off of remaining value, then depreciate new fit-out | More limited due to plant & equipment restrictions |
Real numbers investors care about
Older commercial assets can still pay: Even a 50-year-old site can produce ~$15-$20k in first-year plant & equipment deductions when assessed correctly.
Case study: A near-new $4M industrial asset with mezzanine and crane delivered about $60k in year-one depreciation, with $40-$55k p.a. for many years thereafter.
Retail & medical fit-outs: High-spec, motorised, and short-life assets (e.g., ducted A/C, lighting, kitchen equipment) turbo-charge Division 40 claims.
Tip: Depreciation isn’t just “paper.” It’s cash you keep, either by reducing tax payable or improving effective yield on your capital.
Fit-outs, scrapping & first-year write-offs (the big missed opportunity)
If you acquire a commercial property with an existing fit-out you now own, and you decide to refurbish, the remaining undepreciated value of that old fit-out can often be written off immediately when scrapped. Then you start a new schedule on the fresh fit-out. For busy operators, this can mean a six-figure deduction in year one, a game-changer for cash flow.
By asset type: why outcomes differ
Not all commercial assets are equal. A basic warehouse (tilt-panel, minimal finishes) can have modest per-sqm construction and lower depreciation relative to a high-spec retail or medical fit-out. Luxury retail can run 10-15× the build cost of a bare warehouse on a per-sqm basis, and that difference often flows directly into larger Division 40 claims.
Structures: trusts, companies & SMSFs
Common scenario: a family trust owns the building (claims building & common strata). Your operating company leases and runs the business from the premises and claims depreciation on the new fit-out. If you demolish an inherited fit-out you own, the trust may claim the scrapping deduction; the company then depreciates the replacement fit-out.
What to do next (simple 5-step flow)
Shortlist the asset using an evidence-led brief. If you’re new to commercial, start here: How to start investing in commercial real estate.
Estimate depreciation early: Before you buy, get a quantity surveyor estimate for Division 40 and capital works.
Model post-tax cash flow: Combine rent, outgoings, interest, and depreciation to compare “apples with apples” across options.
Lock in due diligence: Protect your position with tight DD clauses. Read: Commercial due diligence with case studies.
Order the schedule post-settlement: A commercial depreciation schedule often starts from about ~$700 and usually pays for itself quickly.
Commercial investing resources
InvestorKit Success Stories (see how clients grow portfolios fast)
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Key terms & dates (quick reference)
Division 40 (Plant & Equipment): Depreciable items like A/C, lighting, motors, appliances, lifts, cranes, etc.
Division 43 (Capital Works): Building write-off, commonly 2.5% p.a. if constructed from 17 Sep 1987.
Residential rule change: For properties purchased after 9 May 2017, second-hand plant & equipment claims are generally disallowed, which is why commercial often wins.
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