Many hotel owners are missing out on tens of thousands of dollars in cash flow each year by using old, incomplete or poor quality depreciation schedules, or even worse, by not having a depreciation schedule at all.
Ensure you are maximising the depreciation deductions available for your hotel.
Depreciation can be a significant tax deduction for hotel owners, decreasing the paper profit for the year, and reducing the income tax payable. A specialist quantity surveyor is the most suitable professional to engage for ensuring depreciation deductions are maximised.
For more general information about what deprecation for a hotel is and how it works visit our Hotel Specialist page.
Read on for our top tips on maximising depreciation deductions for your hotel.
Maximise the value of Plant and Equipment in the contract of sale.
If you are in the process of purchasing a hotel, you may want to consider leaving the attribution of purchase price between Goodwill and Plant and Equipment as blank, or at least until you have had a quantity surveyor complete a detailed, valued asset inventory.
When the contract of sale stipulates the specific value of Plant and Equipment, that becomes the maximum value attributable to the Plant and Equipment items listed in the inventory.
Where the contract value remains blank, this limitation no longer exists.
As an example, if your contract of sale stipulated a Plant and Equipment value of $100,000 for an attached inventory of assets, then that $100,000 maximum has to be dissected and applied against the individual assets listed in inventory, to a maximum of $100,000 only.
But what if the actual sum value of those assets is higher? If a Quantity Surveyor were engaged to independently assess and value all of the assets and their results reported a total asset value of $150,000, that is $50,000 worth of assets that wouldn't be claimable for depreciation due to the limit imposed by the stipulated contract value. That's $50,000 less tax deductions claimable over the life of those assets.
Ensure you have a detailed inventory of all Plant and Equipment assets and that their values and effective lives have been properly assessed.
If the purchase of your hotel is now in the past, and your current actual assets no longer reflect the inventory at time of purchase, engage a quantity surveyor to complete a depreciation schedule to ensure you are depreciating all of your assets from the most appropriate value for a suitable effective life.
Whilst the ATO does prescribe effective lives for hotel plant and equipment assets, these effective lives are not specifically applicable to second hand assets and may need adjustment as determined by a quantity surveyor.
This process also ensures no assets are missed, and that future plans for the hotel and the Plant and Equipment assets can be considered.
An accountant is not recognised by the ATO as qualified to value plant and equipment assets, nor determine their suitable effective lives.
Maximise deduction opportunities when renovating or refurbishing.
With hotels being refurbished so often, it is important that hotel owners ensure their depreciation schedules remain current to maximise ongoing deductions for Capital Works and Plant and Equipment depreciation.
Ideally engage your quantity surveyor when you are about to commence any significant works.
Your quantity surveyor will ensure that all assets that will be demolished or disposed of are accurately recorded for scrapping – don’t throw out deductions when you throw out your old assets!! Old carpet, furniture, bars, fridges etc all have value. Your quantity surveyor will ensure that your current depreciation schedule is up to date, to ensure maximum deductions for scrapping.
At the completion of the works, your quantity surveyor will return to assess and report on the new works and ensure all works and new assets are accurately recorded and their annual depreciation figures are reporting for their remaining lives.
Engaging a quantity surveyor for this purpose is particularly important if you do not have records of all expenses.
In this case where records are missing or incomplete, a quantity surveyor is qualified to estimate construction costs and asset values to ensure that you remain ATO compliant, and that all capital works and assets are recorded and depreciated going forward for maximum effect for the business.
Ensure your depreciation schedule has been prepared by an industry specialist.
The construction of a hotel and it's included assets are vastly different to the building and assets of a standard residential property.
A specialist quantity surveyor will know their way around a hotel, know and understand the costs of construction and asset values, and will have a deep understanding of the detail around how to maximise depreciation for maximum benefit.
Grouping and pooling of assets, utilisation of immediate write-off provisions and attributing appropriate values and effective lives for assets can all make substantial differences in the outcome of a report and therefore the cash flow of a hotel business.
Large Country Pub leasehold purchased for $1.9million and freehold purchased for $3.7million.
Tom’s company owns a large country pub, located in Wagga Wagga.
The pub has had multiple updates and refits over the years prior to purchase in 2020.
The Large Country Pub is freehold & leasehold, has multiple bars, bottle shop, gaming facilities, bars and accommodation.
Tom engaged Capital Claims Tax Depreciation to prepare a tax depreciation schedule.
In the first year Tom claimed $135,557.
Over the first five full financial years Tom claimed $597,037 in tax depreciation deductions.
Total tax depreciation claimed for life of schedule $1,188,521.
Both landlords and lessees of hotels / pubs, have the opportunity to increase cash flow and return on investment by claiming substantial tax deductions for the capital works and depreciation of their building, fit-out and business assets.
A hotel / pub depreciation schedule is typically far more complex than a depreciation schedule for a residential property.
Our experienced team will conduct a thorough site assessment and review the contract of sale, inventories and lease arrangements to ensure maximum results and compliance.
Consult with our team today for free advice about the depreciation benefits for your hotel / pub property 1300 922 220.
Download our FREE eBook Buying A Pub – Ensure maximum deductions for depreciation and boost cash flow early! Testimonials and our clients hotel case studies included.
Mark is an expert quantity surveyor, business owner, public speaker and property developer. With 20+ years experience in the construction and quantity surveying industry Mark’s specialist expertise have been sought in consultant capacity by professional bodies such as the National Institute of Accountants and the National Tax and Accountants Association, and he has presented at various property and tax seminars and expos nationwide. Mark holds a Bachelor of Construction Management from the University of Newcastle, is an affiliate member of the Australian Institute of Quantity Surveyors and a Registered Tax Agent.View all posts by Mark Wilkins