How to Write Off Commercial Property in Australia (2025 Guide to Deductions & Depreciation)

• Vishal Dhanraj
• 8 Sep, 2025
• 0 Comments

The fastest way to leak profit from a commercial building is to miss legal tax deductions. If you want to write off commercial property the right way in Australia, you need a clean plan: what to claim now, what to depreciate over time, and how to avoid the traps that trigger ATO questions. You can’t write off land. You can usually claim the building (capital works), plant & equipment, and a long list of running costs. Expect some items to be immediate deductions, and others to be spread over years.

What you’re likely trying to get done right now:

• Figure out what can be deducted now versus depreciated over time.
• Set up (or fix) a depreciation schedule that the ATO won’t argue with.
• Tell repairs from improvements so you don’t lose a deduction.
• Run the numbers on a live example: investor vs owner-occupier, new vs older building.
• Know how upgrades, fit-outs, and a future sale change your tax bill.
• Capture GST credits and keep clean records so you can sleep in June.

TL;DR: What you can and can’t claim (Australia, 2025)

• You can’t deduct land. You can deduct the building (capital works under Division 43, typically 2.5% p.a. up to 40 years) and plant & equipment (Division 40, using effective life).
• Immediate deductions often include repairs (not improvements), interest, rates, insurance, property management, cleaning, security, land tax (when income-producing), and borrowing costs (over time if >$100).
• Fit-outs split: structural items are capital works; movable or mechanical items are plant & equipment. Tenants can claim leasehold improvements.
• Small businesses: the instant asset write-off is $20,000 per asset (extended to 30 June 2025 per Federal Budget announcements). Always verify with the ATO for the latest threshold and dates.
• When you sell, claimed building write-offs reduce your CGT cost base, and you may have depreciation recapture on plant. Plan this early.

Step-by-step: How to write off a commercial property (Australia, 2025)

I’m based in Melbourne. Last year I helped a friend who bought a small warehouse in the north and a café tenant moved in. The tax pieces weren’t hard; they were just scattered. Here’s the clean sequence we used.

1. Pin down the owner and the use. Is the property owned by you, a company, a trust, or your SMSF? Is it leased to third parties or used by your own trading business? Ownership and use drive what you can claim and how you apportion costs.

   • Investor/landlord: Deduct rental expenses and depreciation against rental income.
   • Owner-occupier business: Deduct expenses in your business. Apportion if part is personal or vacant.
   • Mixed-use: Split deductions by floor area or a fair and documented basis.

2. Split the property into land, capital works, and plant & equipment.

   • Land: Not deductible. It sits there. No write-off.
   • Capital works (Division 43): The structural part: walls, roof, concrete, structural partitions, fixed awnings, many fixed fit-out components. Most modern commercial buildings qualify at 2.5% per year over 40 years from when construction finished.
   • Plant & equipment (Division 40): Movable or mechanical assets: HVAC units, lifts, hot water systems, fire panels, commercial ovens, point-of-sale hardware, security cameras, carpets. Depreciated over ATO effective life using prime cost or diminishing value.

   Pro tip: If you don’t know the original construction cost, get a quantity surveyor (QS) depreciation report. The ATO explicitly accepts QS estimates for Division 43 and asset schedules for Division 40. I’ve seen QS schedules pay for themselves in the first year.

3. Choose depreciation methods for plant (Division 40).

   • Prime cost: Even spread. Annual deduction = Cost × (Days held ÷ 365) ÷ Effective life (years).
   • Diminishing value: Front-loaded. Annual deduction = Base value × (Days held ÷ 365) × (200% ÷ Effective life). The base value changes as you claim.

   Pick one per asset. If cash flow is tight, many pick diminishing value for a bigger early deduction. If financials look better with smoother expense lines, prime cost can help.

4. Capture immediate deductions and special rules.

   • Repairs vs improvements: Fixing a leaking roof = repair (deduct now). Replacing the whole roof with a better one = improvement (capital works). Document the before/after condition with photos and invoices.
   • Borrowing costs: Loan establishment, mortgage docs, title search. Immediate deduction if the total is $100 or less; otherwise spread over the lesser of 5 years or the loan term.
   • Interest: Deduct interest on the portion of the loan used for the property or fit-out.
   • Running costs: Council rates, water, land tax (if income-producing), strata/OC fees, insurance, property management, cleaning, security, pest control, advertising for tenants, legal fees for lease renewals.
   • Prepaid expenses: Small businesses may deduct certain prepayments if the service period is 12 months or less and ends in the next income year. Otherwise, apportion.
   • Instant asset write-off (small business): For eligible small businesses, the per-asset threshold is $20,000 to 30 June 2025 (per the 2024-25 Budget announcements). Applies to new or second-hand assets first used/installed within the period. Always confirm the current threshold and eligibility on the ATO website.
   • Low-value and small business pools: If you use small business simplified depreciation, you typically claim 15% in the first year and 30% thereafter (except assets under the instant write-off threshold). Outside the SBE rules, low-value pooling and Division 40 pooling can simplify tracking for sub-$1,000 assets.
   • Blackhole expenditure (s40-880): Certain business start-up and business-related costs not otherwise deductible may be written off over 5 years.
   • Stamp duty and acquisition costs: Not deductible when paid; they form part of your CGT cost base.

5. Handle GST the right way.

   • If you’re GST-registered, claim input tax credits on most expenses and assets (except those with no GST like land tax). Deductible amounts are usually net of GST.
   • Commercial rent is typically subject to GST if you’re registered. On sale, GST may apply unless it’s a going concern or you use the margin scheme; get advice early.

6. Keep records ATO-friendly.

   • Contracts of sale, settlement statements, QS report, invoices, asset register, loan statements, lease agreements, outgoings statements, photos for repairs.
   • Track days held and first use dates for depreciation pro-rating.
   • If a tenant contributes to fit-out, record who owns what and any incentives or rent abatements.

7. Plan the exit (or a partial demolition) now.

   • Scrapping: If you remove or demolish assets or parts of the building, you may deduct the remaining undepreciated value. QS “scrapping reports” help here.
   • On sale: Division 43 claims reduce your CGT cost base. Division 40 may trigger a balancing adjustment (recapture) if sale proceeds exceed adjustable value.
   • Entity matters: Companies don’t get the 50% CGT discount. Trusts/individuals may, if held >12 months. Small business CGT concessions can apply to active assets if tests are met.

Examples, calculations, and a quick cheat-sheet

Numbers make this real. Two short case studies, then a cheat-sheet you can print.

Example 1: Investor buys and leases a small warehouse

Purchase price $3,000,000 (land $500,000; building $2,350,000; plant $150,000). Settlement 1 October. Rent starts 1 November.

• Division 43 (Capital works): 2.5% × $2,350,000 = $58,750 per full year. Year 1 is pro-rated from settlement date if you use it to produce income from that point. From 1 Oct to 30 June is 273 days: $58,750 × 273/365 ≈ $43,930.
• Division 40 (Plant): Assume HVAC $80,000 (effective life 10 years), security system $20,000 (effective life 5 years), racking $50,000 (effective life 10 years, if landlord-owned). Using diminishing value (200%/effective life):
  • HVAC year 1: $80,000 × (273/365) × (200%/10) ≈ $11,972.
  • Security year 1: $20,000 × (273/365) × (200%/5) ≈ $5,978.
  • Racking year 1: $50,000 × (273/365) × (200%/10) ≈ $7,482.
• Immediate deductions: Interest on the portion of the loan used for purchase, council rates, insurance, land tax (once the property is income-producing), leasing fees, legal costs to prepare the lease, property management.
• GST: If registered, claim GST credits on many purchase costs (excluding land tax, etc.). Keep amounts net of GST when you calculate deductions.

Result: In the first year you’ll often claim $60k-$70k+ in depreciation alone on a $3m deal like this (depending on the plant mix and the settlement date), plus running costs and interest.

Example 2: Owner-occupier small business fit-out

You buy a strata office for your marketing agency in Collingwood and spend $150,000 on a fit-out. You’re a small business for tax purposes.

• Split the spend: Glass partitions attached to slab, built-in reception desk fixed to structure, plumbing rough-in, and compliant acoustic ceilings = capital works (Div 43). Loose desks, chairs, computers, a ducted AC split system unit, cabling, security cameras = plant (Div 40).
• Instant asset write-off: If an individual plant item costs under the threshold (say $7,000 for a camera system), you can write it off immediately if first used/installed in the relevant period. If it’s $24,000, it doesn’t qualify-depreciate it normally.
• Div 43: Capital works portion (say $90,000) at 2.5% = $2,250 per full year, pro-rated if applicable.
• Div 40: Plant portion (say $60,000 split across assets). Use diminishing value if you want higher early deductions.
• Repairs vs improvements: If you replaced broken tiles like-for-like before opening, that’s a repair. Upgrading to premium stone to modernise = improvement to capitalise.

Result: Many owner-occupiers underclaim fit-out deductions. A proper asset-by-asset schedule beats a single lump-sum invoice description every time.

Cheat-sheet table

FAQ and next steps for different scenarios

Can I write off land? No. Land is never depreciable. You capture it in the CGT cost base. The building on top is where the write-offs live.

What about body corporate / owners corporation fees? Administrative and maintenance levies are deductible. Special levies that fund capital improvements are capital and usually get treated under Division 43 (via the building’s cost base and QS allocation).

Repairs vs improvements: how do I tell? If you restore something to its original condition without improving it (like-for-like), it’s a repair. If you improve, extend, or replace the whole asset with a better version, it’s capital. Photos, invoices, and a short note in your files make this easy to defend.

Can tenants claim fit-outs? Yes. Tenants can claim Division 40 and Division 43 on leasehold improvements they pay for. If you rip out the fit-out at lease end, you may claim the undeducted balance (scrapping) if you actually dispose of it.

What if the property is vacant? If it’s genuinely available for lease (advertised at market rates, reasonable conditions), you can usually claim many expenses and depreciation. Keep evidence of your leasing efforts.

Do I need a QS report? If you don’t have detailed construction costs or you want to maximise and substantiate claims, yes. The ATO recognises QS-prepared estimates for capital works and plant allocations. In my experience, a QS report pays back fast on anything built or heavily refurbished in the last few decades.

How do GST credits interact with deductions? If you can claim a GST credit, you deduct the net-of-GST amount. If there’s no GST on a cost (like land tax), you deduct the full amount.

I over- or under-claimed past years. Can I fix it? Yes. You can amend tax returns within the amendment period (varies by entity type and size). If you discover missed Division 43/40 deductions, a new QS schedule can help quantify the corrections.

Will selling the property claw back my deductions? Partly, yes. Division 43 deductions reduce your CGT cost base (which can increase the gain). Division 40 may trigger a balancing adjustment (recapture as ordinary income) if your sale proceeds allocated to plant exceed its adjustable value. Plan this before you list the property.

Does entity choice matter? It does. Companies don’t get the 50% CGT discount. Trusts and individuals may, if the asset was held >12 months. Small business CGT concessions can reduce or even eliminate capital gains for active business assets if you pass the tests (turnover/net asset thresholds, active asset conditions). Get tailored advice.

What about the US? Different regime. The US uses MACRS, Section 179 expensing (annual caps), and bonus depreciation (phasing down after 2023). Don’t mix rules-follow ATO guidance for Australian property.

Is land tax deductible? For an investment/leased commercial property, yes, when it’s income-producing. For an owner-occupier business, it’s a business expense deduction.

Do improvements reset the 40-year clock? New qualifying construction starts its own 40-year period; it doesn’t reset the original building’s clock.

Any credible sources to rely on? Use ATO guidance on Division 43 (capital works), Division 40 (plant & equipment), small business simplified depreciation and instant asset write-off rules, prepayment rules, and borrowing costs. The Federal Budget papers and Explanatory Memoranda confirm threshold changes. State revenue offices cover land tax details.

Next steps that work in the real world

1. Get your documents together: Contract of sale, settlement statement, building plans, prior renovation invoices, asset lists from the vendor if available, loan documents, leases.
2. Book a QS: Ask for a full capital allowances report: Division 43 schedule, Division 40 asset register, and a scrapping schedule if you’re upgrading soon. Tell them the settlement date and first income date.
3. Set your depreciation policy: Pick prime cost or diminishing value per asset. For small businesses, choose if you’re using simplified depreciation rules.
4. Map upgrades before 30 June: If cash allows, bring forward smaller assets under the instant write-off threshold. Split quotes so each eligible asset is listed separately (not one big lump sum).
5. Clean up GST: Make sure you’re registered if required, claim credits in your BAS, and store tax invoices in one place.
6. Talk to your tax agent: Confirm your structure, land tax position, and any small business CGT concessions you might access later.

Troubleshooting by scenario

• No construction cost info: Use a QS estimate backed by industry data. The ATO accepts this.
• Inherited or very old building: You can still claim if there’s qualifying construction or later renovations. The QS will carve it up and date the works.
• Mixed-use building (e.g., shop + residence): Apportion by floor area or a reasonable method, and keep a note explaining it.
• Tenant incentives and contributions: Record who owns which assets. Incentives may be assessable to the tenant or capital to the landlord depending on structure; mirror this in your asset register.
• Major refit: Don’t forget scrapping the old assets. That deduction gets missed a lot. Ask your QS for a demolition/scrapping schedule.
• Large tax loss building up: Consider method choices (prime cost vs DV), the timing of upgrades, and your broader structure. Sometimes smoothing deductions helps with lending and reporting.

A last practical note from my own place: when Leo, my cat, curls up on the laptop bag during EOFY, I take the hint to pause. Fresh eyes catch missed invoices and lazy descriptions. Clean descriptions on invoices (what, where, why) are the difference between a clean deduction and a long email chain in August.

Compliance note: This guide reflects Australian settings as at 2025. For live thresholds, eligibility, and definitions, rely on the ATO’s primary guidance on Division 43, Division 40, small business depreciation, borrowing costs, prepayment rules, and GST treatment. If you’re planning a sale or a major refit, loop in your tax agent early to model CGT and recapture before you spend.

• write off commercial property
• commercial property depreciation
• Division 43
• Division 40
• instant asset write-off