Commercial Property and Your SMSF — Understand The True Benefits

Self Managed Super Funds & Property Depreciation (Part 1).

FOR MANY AUSTRALIANS, superannuation is one of the most important investments they have to help them save for the future. 

Although most people may choose professionally managed super funds, an emerging trend has seen a growing number of people who elect to set up a Self Managed Super Fund (SMSF).

A few Facts

According to the Australian Taxation Office (ATO): In the four years leading up to the 30 June 2012, the SMSF sector grew by $109 billion or 33 per cent. In dollar terms, this represents the strongest growing super sector. The SMSF sector contributed the largest proportion of overall growth with 42 per cent of the total growth in super assets.

Those who elect to put their superannuation into an SMSF have more control over where their retirement funds are being invested — because they (as members) become a trustee. Trustees of SMSFs can choose to invest in almost any investment product (subject to some restrictions made by the ATO). 

In recent times, BMT Tax Depreciation has seen an increase in the number of SMSFs investing in property.

This is mostly due to change in legislation allowing the trustee of a SMSF to set up a structure, which permits them to borrow money to invest in real estate. 

As more SMSF trustees decide to invest their money in real estate … maximising your? cash-flow from an investment property (via a depreciation claim) becomes increasingly important.

How Does Depreciation Work?

Depreciation is a non-cash deduction (meaning investors do not need to outlay any money to be able to claim it) — which the ATO allows investors in property to claim, due to the wear and tear of a building structure and its fixtures over time. 

Property investors can claim tax depreciation in two ways: 

  1. As a capital works deduction for the decline of the buildings structure, and
  2. For the depreciation of all plant & equipment items contained both inside and outside of the property.

As a general rule: Capital works deductions can be claimed by the owners of any residential building, where construction commenced after the 18 July 1985. Owners of non-residential investment properties may claim capital works for any commercial property, where construction commenced after the 20 July 1982.

Though these restrictions apply, owners of older properties may still be able to claim capital works deductions for any recent renovations completed since these dates. And you are also able to claim depreciation on plant & equipment items contained both inside and outside the property (such as carpets, hot water systems, blinds, stoves, light shades and heaters). 

Plant & equipment items can be claimed regardless of a buildings age. Therefore, no matter what type of property or age of the building, there are always depreciation deductions to be found.

Benefits of putting Investment Properties in a SMSF structure

Using an SMSF is a cost-effective way to own properties in a structure with a reduced tax rate.

This essentially means that your SMSF will get to keep greater earnings when compared to a property owned personally, or under a standard corporate structure — nearby allowing you to accumulate more towards your retirement, faster.

A compliant SMSF is taxed at the same rate as an industry fund (which is 15% on earnings) compared to nominal rates or non-complying funds, which can be taxed as high as 45%. 

Along with this, there are very few limits to the types of property an SMSF can choose to invest in — provided the SMSF can service the property expenses completely and independently, as well as other SMSF running cost requirements.

Next Week: We’ll continue this “mini-workshop”, and you will discover exactly …

  • How Commercial property Depreciation fits into an SMSF;
  • Whether it can be Leased to a member of the fund; and
  • The capital gains tax Benefits of holding property in an SMSF


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