Investing in property through a self-managed super fund (SMSF) is a popular practice nowadays that has a great number of benefits. Members who are managing their own super have more flexibility when it comes to investments and have more control over their retirement savings. Tax savings are probably one of the greatest advantages of buying a property through your super fund. All the rental incomes generated from a property that is owned by an SMSF is taxed at 15% (at maximum), which is considerably lower when compared to the tax you are required to pay for a property personally owned by you, which could often be around 40% if not more.
Having a smart investment strategy is the key to making the most out of your investments and increasing your savings. Claiming property depreciation should be a vital part of the investment strategy. This is the best way for trustees to reap all the amazing benefits that come with property investments. With proper depreciation you have the opportunity to increase retirement income. As a general rule, tax deductions can be applied to any property that generates some sort of income for its owner. Well, property depreciation is a form of a tax deduction that is designed to boost the cash flow of the property. Let’s see what are the key features of depreciation, how it works and what are the most important rules you should now about the whole process.
As time goes by the fixtures inside any property and the property itself wear out, or in other words, they depreciate. The laws of the Australian Taxation Office (ATO) allows trustees to claim this property depreciation in the form of tax deductions. You are allowed to claim depreciation on both the equipment and the building. The term equipment is used to define all the items that are inside the property including kitchen appliances, furniture, rugs, blinds, etc., while all the construction costs for the property fall under the category of building depreciation.
The procedure for claiming depreciation allowance
First you should know that you have the right to request depreciation for your SMSF property only after you have completed your annual tax return. To begin the process of depreciation you need to obtain a report that will divide the property into structural elements (brick, concrete) and plant items (appliances, furniture). The report is known as depreciation schedule and should be prepared by a qualified quantity surveyor. It contains essential information including the value of all the equipment items and the construction costs for the building. Therefore, prior to preparing the report, the quantity surveyor should make a site inspection of the property to gather all this information.
Additional factors to consider
There are some rules that you should know before you claim depreciation. It is vital to know that the fact how old is your investment property will eventually determine how much tax deductions you could get for it. For those properties that were built after 1985 the ATO allows you to get deductions for both the equipment items and the building itself. However, in the case when the property was built before that year, you have the option to claim depreciation on the equipment only.