So, what’s the difference (or what’s similar) between Industrial and other commercial properties?
Tax wise which one should you choose? Should you look outside Melbourne? What do property tax accountants think about this?
Industrial property tax has unique rules and overlaps with commercial property tax.
(By the way, this is all generalities. What we are about to cover does not address your personal, individual or financial situation. As usual, consult an expert in property, then another one in tax, or us, before doing anything .. and now for our regularly scheduled program!)
Industrial properties often include warehouses, manufacturing sites, and storage facilities. These properties have specific tax rules that property tax accountants in Melbourne need to manage carefully. Key tax areas include rental income, deductions, capital gains, and GST. Here’s a breakdown of industrial property tax implications. With a focus on similarities and differences with commercial property tax and related investments.
- Tax on Rental Income
Like commercial property, rental income from industrial property is taxable. All rental income must be declared each year. Property owners can claim deductions to reduce taxable income (“Australian Taxation Office”). Deductible costs include interest, property management fees, insurance, and utilities if they are paid by the property owner. (You can probably find a more thorough list put together by one of our accountants on the site or on our sister site https://www.mytaxguy.com.au)
For example, if an industrial property earns $60,000 in rent with $20,000 in expenses, the taxable income would be $40,000. This is similar to commercial properties, where all income and expenses need accurate reporting. A property tax accountant in Melbourne ensures that deductions are claimed correctly though. But I think most get that basic premise. They think the devil is only in the details – and that’s where they stumble too. But, make no mistake. There are plenty of big picture stuff that individuals (And accountants that don’t specialise) don’t use.
- Deductions for Industrial Property
Industrial property allows many of the same deductions as commercial property. However, industrial sites often have higher costs, such as specialized maintenance and safety requirements. Property tax accountants in Melbourne can help ensure that these unique expenses are fully deducted.
Interest on Loans: Like commercial property, interest on loans taken to buy or improve an industrial property is deductible. This applies to any loan part used for income-producing activities.
Depreciation: Industrial property owners can claim both building and asset depreciation. Depreciation rules for industrial properties are similar to commercial ones, with two types: capital works and plant and equipment.
- Capital Works: This applies to the building structure. For industrial buildings constructed after 1982, owners can claim 2.5% of the building’s cost each year. But industrial properties may have higher construction costs due to special requirements like reinforced floors or heavy-duty doors (BMT Tax Depreciation).
- Plant and Equipment: This includes items like machinery, forklifts, and ventilation systems. Industrial property often has more valuable equipment than commercial property, which can increase deductions. However, second-hand equipment installed after 2017 cannot be claimed unless newly purchased.
Maintenance and Repairs: Like commercial property, repairs are deductible right away. But improvements must be depreciated over time. Maintenance costs for industrial property are often higher due to specialized machinery and safety needs.
Management Fees: Management fees paid for industrial property are also deductible. But these fees can be higher for industrial property due to complex tenant needs and safety regulations. A property tax accountant in Melbourne can guide owners on claiming full deductions.
- Capital Gains Tax (CGT) for Industrial Property
Selling industrial property may lead to capital gains tax. This works similarly to commercial property CGT. The gain is calculated by subtracting the property’s cost base (original cost, improvements, and fees) from the sale price.
CGT Discount: Owners who hold the property for more than one year can get a 50% CGT discount. Like commercial property, only half of the gain is taxed after one year. For example, if the profit is $200,000, only $100,000 is subject to tax (Australian Taxation Office).
Small Business CGT Concessions: Industrial property used for a business can qualify for small business CGT relief. Similar to commercial properties, this depends on asset limits and use of the property. But industrial properties often qualify due to higher asset values.
There is a world of structuring that helps with tax planning and asset protection that most never even discover unless they have the right accountant. The impact on them and their loved ones is immense and painful. Ignorance is truly bliss.
- Goods and Services Tax (GST) on Industrial Property
GST is usually applied to industrial property just like with commercial property. GST applies to the sale and lease of most industrial properties. Property tax accountants in Melbourne can help owners manage these GST rules.
GST on Sales: Selling industrial property often requires GST to be added to the sale price. But the GST Margin Scheme may apply. This scheme allows GST to be calculated on the profit margin instead of the full price, helping reduce the GST owed (“Property Council of Australia”).
GST on Rent: If an industrial property is leased, GST must be charged on the rent. Owners must pay GST collected from tenants as part of their Business Activity Statements (BAS). Property tax accountants in Melbourne ensure proper BAS reporting for GST on industrial property.
- Record-Keeping and Compliance
Good record-keeping is vital for industrial property. Owners must keep all records of income, expenses, and claims. These records must be stored for five years from the date of lodging a tax return.
Depreciation Schedules: A property tax accountant in Melbourne may suggest a depreciation schedule by a quantity surveyor. This document helps ensure all allowed deductions are claimed. Industrial properties often have many high-value assets, making accurate schedules key (BMT Tax Depreciation).
Records for GST and BAS: For GST compliance, industrial property owners must keep thorough records and submit BAS statements on time. Property tax accountants in Melbourne can help owners manage these records.
Similarities and Differences Between Industrial and Commercial Property Tax
- Income Tax: Both property types need to declare rental income and can claim similar deductions, like interest and fees. Deductions are complex due to the high value and range of expenses, so property tax accountants in Melbourne are helpful.
- Depreciation: Both industrial and commercial properties allow capital works and plant and equipment depreciation. However, industrial properties often have more specialized and high-value assets, which can increase deductions.
- CGT: Both properties can qualify for CGT discounts and small business CGT concessions, especially when used in a business. The process for calculating CGT is largely the same for both.
- GST: GST applies to the sale and lease of both property types. However, industrial properties often have larger transactions, making GST compliance especially important.
Avoiding Common Tax Mistakes
Mistakes with industrial property tax can be costly. Here are a few to avoid:
- Not Claiming High-Value Assets: Industrial property often has valuable equipment. Failing to claim these as deductions reduces tax savings.
- Forgetting GST on Rent: Industrial property owners must add GST to rent charged to tenants. A property tax accountant in Melbourne can help ensure all GST is collected.
- Mixing Up Repairs and Improvements: Repairs are deductible right away, but improvements are not. Many owners make this error, which can lead to penalties.
Seeking Help from a Property Tax Accountant in Melbourne
Industrial property tax rules are complex. Property tax accountants in Melbourne can guide investors through income tax, GST, CGT, and deductions. Professional help ensures compliance and can maximize tax savings. Plus asset protection too. Contact us on 1 800 672 670
Works Cited
Australian Taxation Office. “Rental Properties 2023.” Australian Taxation Office, 2023, www.ato.gov.au/General/Property/Rental-properties.
BMT Tax Depreciation. “Industrial Property Depreciation.” BMT Tax Depreciation, 2023, www.bmtqs.com.au/industrial-property-depreciation.
Property Council of Australia. “GST and Industrial Property.” Property Council of Australia, 2023, www.propertycouncil.com.au/industrial-property-gst.