Lucrative deduction supports investment in crucial sectors
The pandemic has highlighted just how ‘essential’ essential services are, particularly those focussed on health and wellbeing. To deliver these services to the country, continued investment into the buildings and infrastructure required for their operations is vital.
There’s no set definition of ‘essential services’ in the pandemic context, instead essential service descriptions are provided to align with the relevant government measures and definitions.
Some key essential services aligned to the pandemic context include:
- Pharmaceutical services
- Grocery stores that predominately sell food
While the Australian Government usually funds most of the spending for medical services, and states and territories fund most community health services, private sector investment is still vital in providing the funds to support the infrastructure required for some of these services.
The healthcare sector is enormous, covering pharmaceuticals, biotech, medical equipment, facilities and more. The great diversification benefits and steady growth within the sector are what make it so attractive to domestic and international investors alike.
JLL recently estimated that the value of real estate in the Australian healthcare sector is between $95 and $105 billion. They also reported that healthcare property yields are expected to fall this year as investors become more attracted to the sector. BMT’s data also showed a 5.5 per cent increase in the number of tax depreciation schedules for private hospitals in the last financial year.
Growth in healthcare expenditure only looks set to accelerate given Australia’s aging population and recent pandemic-induced demand.
There are over 5,700 pharmacy businesses across Australia that hire more than 64,000 employees. A recent analyses conducted by IBISWorld evaluated the period between 2016 and 2021 and found that pharmacies in Australia hold an annualised market growth rate of 2.6 per cent. Meanwhile, the market for tenanted pharmacy investments has been in hot demand in 2021, with multi-million-dollar deals occurring in recent months.
Many speciality retail buildings have had a tough time throughout the pandemic, but demand for essential supermarkets is still evident and on investment radars.
Investors continue to favour these non-negotiable retail assets that aren’t as easily replaced through online traders. This comes as no surprise with big players like Coles reporting that their 2020 full-year sales revenue increased by 6.9 per cent to $37.4 billion.
The smaller players in the supermarket industry also prove their case as secure and stable tenants. At the end of the 2019 calendar year, IGAs, fresh-food stores and other independent grocers made up 28.2 per cent ($29.1billion) of the total grocery market dollars. Interestingly, the number of tax depreciation schedules BMT prepared for food retail stores last financial year doubled those ordered in FY 2019/20.
Investment is fundamental to the growth of these sectors, but the required tangible property doesn’t come cheap and the market isn’t always easy to enter. Borrowing money to invest in commercial assets is difficult and complicated as banks see an increased element of risk compared to residential.
However, on the positive side there are a variety of tax deductions available to improve after-tax cash flow. Not only can commercial property owners claim taxable expenses like interest repayments, insurances and property management fees, but they can also claim depreciation on the building’s structure and the fixtures they own in the property.
A commercial property’s tenant often installs their own fit-out, but there are still plenty of assets that the building owner can commonly claim that are part of the structural fit-out. Examples are hot-water systems, air-conditioning systems, toilets and light fixtures.
The following table estimates just how much in depreciation deductions a commercial building owner could expect from their property’s structure and fixtures.
Commercial property owners must consult with a specialist quantity surveyor if they are wanting to claim all depreciation deductions available to them. The specialist will prepare a tax depreciation schedule that will produce the highest deductions and apply industry-specific legislation to ensure compliance is maintained.
To learn more about BMT’s commercial process, contact their team on 1300 268 628 today.