Properties held within a Self-Managed Superannuation Fund (SMSF) can indeed qualify for depreciation deductions, which can significantly enhance the fund’s tax efficiency. Understanding the nuances of claiming these deductions is crucial for SMSF trustees and their advisors.
How Depreciation Works for SMSF Properties
Within an SMSF, depreciation can be claimed under Division 40 for plant and equipment and Division 43 for capital works. It's important to note that for residential properties acquired after 9 May 2017, the ability to claim depreciation on second-hand plant and equipment has been restricted. This means that SMSFs acquiring second-hand properties after this date cannot claim depreciation on the existing plant and equipment. However, they can still claim on new plant and equipment they purchase and on capital works.
How This Works in Practice
Consider a scenario where an SMSF purchases a new commercial property in Melbourne for $800,000. The property includes plant and equipment valued at $50,000. Over the first year, the SMSF can claim depreciation on the plant and equipment under Division 40, potentially saving around $7,500 in tax, assuming a 15% tax rate for the SMSF. Additionally, capital works deductions under Division 43 might add another $10,000 in deductions, enhancing the fund's tax efficiency.
Professional Insight
In our experience, SMSF trustees often overlook the potential tax savings from depreciation. One thing we frequently see is trustees not updating their depreciation schedules, missing out on deductions for new acquisitions or improvements. What most investors don't realise is that even if a property is second-hand, new plant and equipment added post-purchase can still be depreciated. Also, ensuring that a property is compliant with ATO guidelines is crucial, as non-compliance can lead to penalties and disallowed deductions.
When Does the Answer Change?
When Should You Seek Professional Advice?
Depreciation claims can be complex, especially within an SMSF. Engaging a Chartered Quantity Surveyor ensures accurate depreciation schedules, while an accountant can provide advice on the tax implications specific to your SMSF. This collaboration is essential to maximise deductions and ensure compliance with ATO regulations.