How Does Property Depreciation Fit into Your SMSF Startegy?


Self Managed Super Funds and Property Depreciation (Part 2)

IN THE FOLLOWING EXAMPLE, your SMSF owns a commercial warehouse purchased for $700,000 with a rental income of $1,200 per week … resulting in a total income of $62,400 per annum.

Expenses for the property such as interest, rates and management fees totalled $42,000. Therefore, the net earnings of this commercial property was $20,400.

Without claiming depreciation, your SMSF would have to pay 15% tax on the net earnings, which would result in a tax payment of $3,060. By claiming $14,500 in tax depreciation, the total earnings is reduced to $5,900 leaving the total tax payable of just $885.

Scenario 1 — without Depreciation claim:

Scenario 2 — with Depreciation claim:

That’s the equivalent of a cash injection of an extra $2,175 per annum towards your SMSF retirement each year.

Can I Rent a Property from my SMSF?

All transactions within an SMSF must be made and maintained on an arm’s length basis.

If your SMSF owns residential properties, you will not be able to personally rent them. Unfortunately, this would be seen by the ATO as a personal benefit. This also applies to holiday rentals.

However, if your SMSF owns a Commercial property, your business may rent these premises … provided your firm pays what is seen to be a fair market value rent.

Effects of Capital Gains Tax on sale of a Property held by a SMSF

Like personally owned properties, there are advantages to owning a property for more than 12 months in a SMSF. Provided the SMSF entity owns the property for longer then a year, it will be entitled to reduce its CGT by 33%, resulting in a reduced CGT rate of 10%.

If the property is owned by the SMSF past the time of retirement, and the trustee is in pension phase, CGT will not apply on the sale or roll-over of the property (although other expenses may still be incurred).

Seek Expert advice

While depreciation deductions are available for investment properties purchased by an SMSF, you do need to seek advice from your Accountant before making decisions on whether to set up an SMSF or where to invest your super.

SMSF trustees, who purchase property as one of their investment strategies, should also contact a specialist Quantity Surveyor to conduct a site inspection — to ensure no available depreciation claims are missed.

Bottom Line: Quantity Surveyors are recognised by the ATO as one of the few professionals with the specialist knowledge necessary to estimate construction costs for depreciation purposes. They are qualified under the Tax Ruling 97/25, and gain access to the latest information through their affiliations and regulating bodies.


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