Is a mezzanine tax deductible?
Many clients tell us ‘I’ve asked my accountant, and they’ve said it’s a fixture because it isn’t going to die, it isn’t going to fall over and it has no moving parts – therefore we can depreciate it at 2.5% like ceilings & walls’. This means you would be able to depreciate it over the next 50 years. For some of us, we won’t even be here in 50 years! It doesn’t line up with business cycles, so this rate of depreciation is not tax effective.
Your new mezzanine needs to be looked at as not an asset, but rather a utility. You don’t pay for 50 years of electricity at the start and hope that you use it all. You need a mezzanine for your business growth now and for the next three, five, ten year plan. The additional floor space is crucial for the acceleration of your business. It needs to pay for itself and be tax deductible now.
How can I do that? Often, your accountant will only answer your according to the questions you ask. How can I make my mezzanine floor which will grow my business, tax deductible? Accountants know the answers, however you need to be more educated as a business leader or as an operations manager or practice manager, to ask better questions of your accountant to get their wisdom.
What our clients found that instead of having the risk of obsolescence and long-term depreciation and not bringing forward the ATO’s contributions, they’ve been able to lease their mezzanine. We’re not a finance company, but we know that you can lease this structure as equipment in the same way as you would lease a forklift, or a photocopier, or a truck which has a fixed service life. This brings 50 years’ worth of deductions to three to five years. This is not a chattel mortgage. I don’t mean just the interest being tax deductible, or the slow burn long-term depreciation. A lease is 100% deductible. It can be financed with a set payment & be an off-balance sheet item. What this means is when you look at your liabilities, you only ever see one month of lease payments. This allows a business to be light on its feet, as well as gaining additional borrowing capacity. The mezzanine can be written off, allowing the ATO to contribute in real time as you’re using the asset. The ATO is interested in you being productive, not in being held back because you don’t know how to finance your mezzanine floor.
Therefore, you can double your productivity and increase your staff accommodation in a tax effective way!
Other Videos in this series that you may be interested in:
What are the risks of building a mezzanine myself?