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Motel and Hotel Tax Depreciation

Motel and Hotel Tax Depreciation

Owning a Motel or Hotel can be very profitable but hard work, a good way to increase your profit and cash flow is to employ a Quantity Surveyor to prepare a Tax Depreciation Schedule for your business.  Motels and Hotels are usually sold as a business with a lease attached, ie a leasehold business or as a freehold going concern, you buy the buildings and the business.

Leasehold for a Motel or Hotel is where you take over the running of the business and pay the owner of the building a lease or rent per year.  When purchasing the business it will come with an asset register or inventory list of what is owned by the business, ie furniture, air conditioners, fridges, cutlery etc. If you purchase a larger Motel or Hotel then it might come with a commercial kitchen, bar or restaurant, in this scenario you will most likely as part of the business sale be owning all of the commercial kitchen appliances, ie ovens, grills, dishwashers  etc.

Generally you are buying the fitout of the business and all the structural walls, roofing or the shell of the building is owned the landlord. Who repairs or redecorates the Motel / Hotel? it is generally the new business owner and not the landlord, remember you are buying the business and that includes all of your fixtures and fittings but also keeping the buildings in a well repaired and tidy state, some leases will have a clause that states that you must redecorate the buildings every 5 years which includes painting, even maintaining and landscaping the land. The hot water system breaks down or needs repair?  Don’t be surprised that the landlord won’t fix this and is considered part of running your business and you will need to fix this yourself.


So why is owning a leasehold Motel or Hotel a good business idea?

  • You don’t need the huge capital outlay of needing to buy the land and buildings on top of the business. You need less money and you can get a good return on your investment straight away.
  • Most people are buying themselves a well-paying job, you don’t have to work for someone else, you are the boss, in most situations, couples buy the business and run it themselves.
  • You can live on site, most Motels / Hotels will have its own manager’s accommodation and you cut down your cost of living by staying on site.


Can you claim tax depreciation on a leasehold Motel or Hotel?

Yes, you can and it will be a lot of money, as discussed above, you own all of the fitout, furniture etc

You will most likely have to keep the buildings in a good condition, you paint or redecorate the units, these are your costs to claim back. What about previous owner’s renovations? Yes, as part of your consideration price to buy the business, this includes works by previous owners, you still have to maintain and repairs these works so why not claim for them? As a Quantity Surveyor specialising in Motels and Hotels, this is what we do every time we inspect properties to maximise how much you can claim back in you tax schedules.

Motels and Hotels have to be kept in good condition and are generally renovated or refreshed quite regularly and in the eyes of the ATO capital works and plant and equipment have a much shorter lifespan, why is this good ? Well you can claim back depreciation a lot faster and get more benefit out of your returns.

Capital works deduction for short term accommodation is 4.0 % per year or 25 years maximum. Compare this to a normal house or unit which is 2.5% a year or 40 years maximum. What about the plant and equipment?  This is accelerated also, ie carpet is 7 years as opposed to 10 years for a normal house or unit.


Some examples of leasehold motel depreciation.


  • A 20 year old Motel with 30 rooms, commercial kitchen, restaurant and bar, purchased for $1.4 million leasehold. Depreciation found to be claimable was $75,000 per year for the first 5 years with $750,000 remaining to be claimed over the full 25 years.
  • A 40 year old Motel with 10 rooms, purchased for $400,000, recently renovated. Depreciation found to be claimable was $35,000 per year for the first 5 years with $320,000 remaining to be claimed over the full 25 years.
  • A 16 year old Motel with 40 rooms, commercial kitchen, bar, restaurant, spa, purchased for $1,250,000. Depreciation found to be claimable was $120,000 for the first 5 years with $1,100,000.00 remaining to be claimed over the full 25 years.


Motel and Hotels that are freehold / going concern

With a freehold going concern motel or hotel, you are buying the land and buildings plus the business. The advantages of this is the increased depreciation that you can claim, you can now claim the structural part of the buildings and improvements.


Other advantages

  • You can buy a run-down business, improve it to a certain level and sell the business with a new lease.
  • As you own the buildings and land, potential for redevelopment is greater, you can also have capital growth in the long term due to raising land prices. If you own the leasehold, you don’t get this benefit.
  • As a freehold owner, the tenant will be repairing and looking after your investment, the only thing that you will need to fix is major defects which are not likely.
  • Disadvantage – you cant claim the accommodation internal fit-out if you sell and lease it to someone else.