Purchasing property through your Self-Managed Super Fund (SMSF) for business purposes can offer several tax advantages, including the ability to claim depreciation. However, this process is bound by specific regulations and must be handled with care.
Depreciation on SMSF Property for Business Use
When your SMSF acquires a property for business use, you are entitled to claim depreciation on that property. This includes both plant and equipment under Division 40 and capital works under Division 43 of the Income Tax Assessment Act 1997. The key is ensuring that the property is genuinely used for business purposes and that all transactions comply with the sole purpose test, which mandates that the fund is maintained solely for providing retirement benefits to its members.
A common misconception is that SMSF properties are exempt from depreciation claims. In fact, as long as the property is used for generating assessable income, depreciation can be claimed. However, trustees must ensure that the property purchase complies with SMSF borrowing regulations and that the asset is not used for personal benefit.
How This Works in Practice
Consider a scenario where your SMSF purchases a commercial property in Melbourne for $800,000. The property includes plant and equipment valued at $50,000. Assuming a 37% marginal tax rate, the annual depreciation claim for plant and equipment might be approximately $5,000, and for capital works, around $10,000. Overall, this can result in a tax saving of about $5,550 per year for the SMSF, enhancing the fund's growth potential.
Professional Insight
In our experience, SMSF trustees often overlook the importance of a professional depreciation schedule, especially for properties with significant plant and equipment. One thing we frequently see is trustees failing to separate personal and business use of an SMSF property, which can lead to compliance issues. What most investors don't realise is the potential for increased SMSF tax efficiency through strategic property depreciation planning. Additionally, ensuring that the property purchase aligns with the SMSF's investment strategy is crucial to avoid potential ATO scrutiny.
When Does the Answer Change?
When Should You Seek Professional Advice?
Given the complexity of SMSF regulations and the potential tax implications, it is crucial to consult with both a Chartered Quantity Surveyor and an accountant experienced in SMSF property investments. These professionals can provide tailored advice, ensuring compliance with ATO guidelines and maximising your SMSF's tax efficiency.