Depreciation on SMSF-owned commercial property
An SMSF that owns commercial property can claim tax depreciation just like any other property investor. The deductions reduce the fund's taxable income, saving 15% in accumulation phase or 0% in pension phase (where there is no tax on earnings from assets supporting pensions up to the transfer balance cap).
Division 43 — Capital works
Commercial buildings are eligible for Division 43 depreciation. The rate depends on when construction commenced:
- Buildings constructed after 20 July 1982 (most commercial property): 2.5% per year over 40 years
- Some industrial buildings have different rates or commencement thresholds
Division 40 — Plant and equipment
Commercial property is not subject to the 2017 residential property restrictions on second-hand plant and equipment. You can claim Division 40 on:
- Existing fit-out assets in the building (if acquired at market value)
- New assets you install during your ownership
- Tenant fit-out left behind when a tenant vacates (in some circumstances)
Leasehold improvements and tenant incentives
If the SMSF (as landlord) contributes to a tenant's fit-out as a lease incentive, those costs may be claimable as Division 43 or Division 40 depending on the nature of the work. A quantity surveyor can advise on the correct classification.
Depreciation when the SMSF leases to a related party
If the commercial property is leased to a related party — such as your own business — all transactions must be at market rent (arm's-length). Non-arm's-length income is taxed at the highest marginal rate under the NALI rules. The depreciation itself remains claimable in the normal way.
Getting a depreciation schedule
A quantity surveyor depreciation schedule for your SMSF-owned commercial property:
- Documents all capital works and plant and equipment
- Provides year-by-year deductions for the SMSF's tax return
- Is prepared on the same basis as for any commercial property investor
- Should be updated when renovations or fit-out changes occur