Acquiring Second-Hand Buildings Can Unlock Tax Savings
But what if you’re buying an existing building?
Too often, investors overlook valuable tax deductions available under section 11(e) – wear and tear allowances, simply because they’re not aware of what qualifies.
💡 Hidden Value in Acquiring Second-Hand Buildings
When you acquire a second-hand commercial building, you’re not just buying bricks and mortar. You’re also acquiring a range of assets that may qualify for wear and tear allowances, such as (and this is not an exhaustive list):
- Electrical and backup power systems
- HVAC and ventilation
- Fire protection systems
- Lifts and escalators
- Access control and security systems
All of these may qualify as wear and tear allowances under section 11(e), and therefore attract tax allowances – often totalling 10–30% of the purchase price depending on the specification and location of the building.
🔍 How to Unlock the Tax Deductions
To access these allowances, a detailed analysis of the purchase price is required. This involves:
✅ Conducting a detailed building replacement cost of the building, and valuation of the land.
✅ Separating out qualifying wear and tear assets from structural building elements.
✅ Applying a just and reasonable apportionment of the purchase price between wear and tear assets, structural building elements and the land.
This kind of review is technical and complex, but the rewards are substantial.
⚠️ Why the Sale Agreement Matters
Here’s a common mistake: assuming the sale contract doesn’t matter for tax – It does.
A seller who understands capital allowances may allocate lower values to qualifying wear and tear assets (oftentimes down to their tax written-down value) to limit the recoupment of their own previously claimed tax allowances. But that same allocation reduces the purchasers ability to claim wear and tear allowances going forward.
If the purchaser is aware of this, it becomes a negotiation lever – you can push for a fairer allocation or adjust the overall deal value to reflect the missed tax benefit.
🧠 Final Thought
Commercial property buyers who understand this area of tax can significantly enhance post-tax returns. And yet, this opportunity is often left on the table.
If you’re acquiring an existing commercial building – or advising someone who is – it’s worth asking:
What portion of the purchase price could qualify for wear and tear allowances?
Chances are, it’s more than you think.
At Capital Allowances Specialists, we work with investors and developers to unlock commercial real estate deductions for maximum tax efficiency.
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