Office Fitout Depreciation

The hard work is done. Your fitout is built and optimised to scale with your team for years to come. 

But the hard truth is, new won’t be new forever, especially in the eyes of the ATO. Did you know that you may be able to file a claim for office fitout depreciation? In this comprehensive guide, we’ll cover all things capital works, letting you in on what you can and cannot claim in your fitout. 

Keep scrolling for valuable insights to help you extract the most financial value from your fitout.

Disclaimer: We are not tax experts, it's essential to consult with professionals who can provide guidance tailored to your specific situation. The following content is for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.

Before we delve into the intricacies, let's start with the basics. Office fitout depreciation refers to the gradual decrease in the value of fitout assets over time. Just like any other asset, such as machinery or vehicles, office fitout components experience wear and tear, leading to a reduction in their value. Understanding how fitout depreciation works is essential for businesses looking to optimise their financial strategies and make informed decisions about their workspace investments.

Capital works deductions, also known as building write-offs, allow businesses to claim deductions for the construction costs of eligible capital works over time. These deductions are typically spread out over either 25 or 40 years, depending on the commencement date of the construction or renovation project.

Examples of capital works claimed in a typical office fitout:

• Security systems
• Emergency alarms
• Modifications to improve accessibility
• Structural improvements, such as walls and flooring
• Lighting and electrical installations
• Office furniture and workstations
• Computer equipment
• Partitions
• Doors
• Mezzanines
• Sinks, toilets, and wash basins
• Signage

It is worth noting that this list is not exhaustive. To be eligible for depreciation, the asset must possess a lifespan exceeding one year, be under the ownership of the taxpayer, and be utilised for income-generating purposes. Given that offices are a space for generating income, it’s no surprise that a wide range of structural elements can be claimed. 

Before signing a commercial lease, it is important to confirm who – either landlord or tenant – is the lawful owner of this fitout. Knowing this upfront will determine what capital works you can or cannot claim.

Scrapping, also known as an office strip out, is the process of removing depreciable assets from a property that generates income. This commonly occurs at the end of a lease period, when a landlord is preparing to market the space to potential tenants. 

If you have a make good clause in your lease agreement, you’ll probably need to perform a strip out or defit near the end of your lease. During these times, scrapped assets may be claimed as capital works, sometimes with an immediate deduction applied. 

However, if a tenant vacates the building without meeting the make good requirements stipulated in their lease agreement, building owners may be entitled to scrap and claim the value of the assets left behind. 

If you’re nearing the end of your office lease, it’s important to follow the rules stated in your agreement. If not, you could miss out on claiming depreciated assets, money that could help fund your next move.

Over time wear and tear happens. Air conditioners break down, lights eventually go out, and walls need to be repainted. Are repairs considered capital works? Not in this case.

Capital works are considered to be significant improvements to an office space (e.g. new equipment, partitions, flooring). Repairs are considered to be general maintenance and their costs cannot be claimed under the capital works scheme. If landlords pay for these repairs, they can write them off in their next filing.

When it comes to calculating office fitout depreciation, businesses have two primary methods at their disposal: straight-line depreciation and diminishing value depreciation.

1. Straight-Line (or Prime Cost) Method

Straight-line depreciation evenly distributes the cost of an asset over its useful life. This method involves dividing the total cost of the fitout asset by its expected lifespan to determine the annual depreciation expense. While straightforward and easy to understand, straight-line depreciation may not accurately reflect the actual decrease in value over time.

2. Diminishing Value Depreciation

Diminishing value depreciation could allow for a more accelerated depreciation of assets in the early years of their useful life. While more complex than straight-line depreciation, the diminishing value method may better reflect the true decline in value for some assets.

ATO Depreciation Tools For Office Fitouts

The ATO has plenty of resources to help business owners with their fitout claims. As always, we suggest reaching out to a tax expert who knows the law inside and out and can help you maximise your claims in the long run. 

Depreciating Assets Guide 

Depreciation & Capital Allowances Tool

By understanding the nuances of office fitout depreciation, businesses can harness the power of strategic financial planning to maximise returns on their fitout investments. By taking proactive steps to identify, record and value fitout assets and other lease incentives, businesses not only enhance their financial health but avoid headaches come tax time. 

At Canopy Fitouts, we create workspaces that inspire, while also empowering business owners to make the most of their fitout. Speak to our team today and we’d be more than happy to give you advice on cost, budgets, requirements, and timeframes for your office or commercial fitout. Give us a call at 1800 434 868 or email info@canopyfitouts.com.au.