Your guide to warehouse depreciation

Warehouses have long been considered a safe and steady commercial investment, but what makes them even more appealing is the ability to boost returns through depreciation. By claiming deductions on both the building itself and the assets inside, investors, tenants and owner-occupiers reduce taxable income and improve cash flow.

Structural elements, such as walls, roofs and concrete foundations are eligible under Division 43 (Capital works), with warehouses constructed after 15 September 1987 able to claim 2.5 per cent per year over 40 years. Warehouses used for manufacturing may qualify for a higher rate of 4 per cent per year over 25 years, provided they meet the ATO’s definition of a manufacturing building.

For older or second-hand warehouses, Division 43 deductions may still apply for qualifying renovations, extensions, or structural improvements completed after 20 July 1982. These rules allow investors to capture tax benefits on both new construction and improvements to existing buildings, enhancing overall cash flow.

At the same time, Division 40 allows depreciation on plant and equipment assets within the warehouse, that are easily removable or mechanical in nature, including racking, lighting, air conditioning, security systems and refrigeration units. Each asset depreciates according to its effective life, offering additional depreciation deductions for both landlords and tenants.

With these depreciation benefits in mind, warehouses are particularly attractive because they combine predictable income and long-term capital growth with opportunities to optimise after-tax returns.

Factors that contribute to their appeal:

1. Strong demand driven by e-commerce and logistics

The boom in online shopping and global supply chains has fuelled demand for storage, distribution and last-mile delivery facilities. Tenants are seeking long-term warehouse space near ports, airports and major highways. This structural shift means warehouses are less exposed to economic downturns than some other property types.

2. Long leases and tenant stability

Industrial tenants typically sign long term leases, often 5 to 20 years. This provides investors with predictable rental income. Unlike retail, where tenants face disruption from changing consumer trends, warehouses generally have lower turnover.

3. Lower vacancy risk

Due to high demand, vacancy rates in many industrial hubs are at record lows, often below 2 per cent. Even smaller strata warehouses have strong leasing appeal to SMEs, trades and storage operators.

4. Capital growth potential

Land in industrial zones is limited, especially near ports, airports and transport corridors. High demand and limited supply have driven steady capital growth in warehouse values.

5. Lower management intensity

Warehouses typically involve lower maintenance compared to retail or office properties. Fewer fit-outs, limited wear-and-tear and less day-to-day tenant management make them easier to own and operate.

When combined with the benefits of warehouse tax deductions, both landlords and tenants can improve their after-tax position and cash flow, enhancing overall investment performance.

Warehouses vary in design and function, with each type offering unique opportunities for landlords, tenants and owner-occupiers to claim warehouse tax deductions.

1. Distribution centres

Large-scale logistics hubs support retail and e-commerce supply chains and have the potential to claim substantial capital works deductions on building structures, loading docks, hardstands and parking facilities, as well as high-value racking, automation systems and office fit-outs.

2. Storage and general warehouses

Standard facilities used by wholesalers, manufacturers and small businesses offer the potential to claim deductions on slabs, roofing, walls, shelving, partitions, lighting upgrades and other tailored improvements.

3. Cold storage warehouses

Specialist cold storage facilities for perishable goods such as food, beverage and pharmaceuticals offer deductions on slabs, roof insulation and service areas, as well as refrigeration units, insulation panels and monitoring systems.

4. Flex warehouses (hybrid space)

Facilities that combine storage, light manufacturing and office areas offer deductions on structural components, mezzanines and car parks, as well as the depreciation of HVAC systems, IT infrastructure and internal office fit-outs.

5. Technology-driven warehouses

Purpose-built facilities for robotics, automation and AI-driven logistics offer large-scale capital works deductions on building structures and heavy-duty floors, as well as high-value automation systems, robotics and conveyors, offering the combined benefit of deductions on both building structure and specialised technology.

Tenants and owner-occupiers of warehouses may also qualify for small business incentives like instant asset write-off, energy incentives or simplified depreciation rules, depending on their turnover and asset thresholds set by the ATO.

This can provide immediate deductions for certain fit-out and equipment purchases, such as shelving, security systems, IT infrastructure or refrigeration units. By combining instant asset write-off with low value pooling and ongoing warehouse depreciation, tenants can significantly reduce taxable profits and improve cash flow in the critical early years of occupation.

As a non-cash deduction, depreciation reduces taxable income, improving cash flow, making warehouse investments more appealing by unlocking additional warehouse tax deductions for both landlords and tenants.

Second-hand warehouses remain a significant source of warehouse depreciation, particularly when upgrades or renovations have been carried out.

Capital works claims: Available for warehouses where construction commenced after 20 July 1982. For older facilities, deductions can still be claimed on qualifying renovations, extensions or structural upgrades completed after this date.

Plant and equipment: Many landlord-owned or tenant-installed assets, such as lighting, racking, roller doors and refrigeration systems, remain eligible for depreciation regardless of the building’s original age.

Fit-out opportunities: Tenants installing new shelving, machinery or office spaces create additional depreciation claims.

Both new and established warehouses therefore provide meaningful warehouse tax deductions, with second-hand properties often delivering significant depreciation deductions through upgrades and renovations of the warehouse structure as well as plant and equipment assets.

Samantha purchased a 1,171 m² warehouse for $1,000,000, featuring partitioned offices, roller-door access, bathroom amenities and car parking spaces. Without claiming depreciation, her property generated an annual pre-tax cash flow loss of $29,044.

Table 1. Samantha’s 1-million-dollar warehouse before and after depreciation

However, by obtaining a depreciation schedule from BMT Tax Depreciation and claiming $38,630 in deductions in the first year, Samantha was able to significantly reduce her taxable income. This increased her tax refund to $25,039 and brought the weekly cost of holding the property down to just $77. Overall, depreciation improved her cash flow by $275 per week, highlighting the substantial benefit of claiming all available deductions.

At BMT Tax Depreciation, we recognise that warehouses offer significant tax deductions for both landlord and tenant. Supported by a site inspection completed by one of our depreciation specialists, our comprehensive depreciation schedules ensure that every eligible asset is identified and accurately classified, adhering to ATO guidelines. Our meticulous approach not only maximises depreciation deductions but also provides peace of mind, knowing that all claims are compliant and substantiated in case of an ATO audit.

Whether you are a landlord, tenant or owner-occupier, contact BMT Tax Depreciation on 1300 728 726 or Request a Quote to ensure your warehouse depreciation is maximised.