Investing in commercial properties within a Self-Managed Super Fund (SMSF) presents a strategic avenue for optimising returns and enjoying unique depreciation benefits.
Let’s delve into the key aspects and differences, as well as the significant advantages that commercial properties can bring to your SMSF portfolio.
Claiming Depreciation on Commercial Properties in SMSF
Similar to residential properties, commercial properties held in SMSFs can significantly benefit from claiming depreciation.
Capital allowance and depreciation deductions play a pivotal role in optimising returns and reducing the taxable income of the SMSF.
It’s crucial to understand that these deductions encompass both Division 40 (covering assets like lighting, air conditioning, and machinery) and Division 43 (focusing on structural components like walls and roofs).
Differences Between Residential and Commercial Properties in SMSFs
Asset Types
Residential Properties: Depreciation typically includes assets like carpets, blinds, and ovens under Division 40.
Commercial Properties: The diversity of commercial assets, such as specialised machinery and extensive lighting systems, provides a broader range of depreciation opportunities under Division 40.
Structural Components
Residential Properties: Division 43 depreciation focuses on structural elements like walls, floors, and roofs.
Commercial Properties: Commercial structures, often more intricate, offer substantial depreciation opportunities for features like facades, internal walls, and specialised construction components.
Improvements
Residential Properties: Improvements may include repainting or renovating a bathroom, which can total thousands in residential depreciation deductions.
Commercial Properties: Commercial improvements, such as fit-outs can offer thousands and in some cases hundreds of thousands in commercial depreciation deductions.
Commercial Property Case Study
Our clients Raj and Anu SMSF invested in an industrial commercial property. Raj and Anu acquired the property for $1,501,778. We completed a comprehensive tax depreciation schedule. In the first full financial year, Raj and Anu SMSF could claim:
Division 40 Depreciation: $19,962
Division 43 Depreciation: $20,588
The total depreciation claimable for the first full financial year amounts to $ 40,550 amount, providing a substantial reduction in the SMSF’s taxable income.
Navigating the Complexities: Engaging a Specialist Quantity Surveyor
Given the unique depreciation landscape for commercial properties in SMSFs, engaging a specialist quantity surveyor is important.
Here at Capital Claims Tax Depreciation, our commercial property deprecation team are experts in construction costs with comprehensive knowledge of tax legislation, and we generate maximum depreciation results for our clients for both Division 40 and Division 43.
Exploring the Benefits of Commercial Property in SMSF
Investing in commercial property within an SMSF provides several benefits:
Stability and Regular Income
Commercial properties often offer stable and regular rental income, contributing to the financial stability of the SMSF.
Diversification
Commercial properties allow for portfolio diversification, reducing risk by spreading assets across different sectors.
Potential for Capital Growth
Commercial properties may experience capital growth over time, contributing to the overall growth of the SMSF’s investment portfolio.
Longer Lease Terms
Commercial leases typically have longer terms than residential leases, providing a more predictable income stream for the SMSF.
Tax Benefits
Claiming depreciation on commercial properties within an SMSF can result in significant tax benefits, helping to reduce the taxable income of the fund.
Flexibility in Use
Commercial properties offer flexibility in terms of use, catering to various industries and businesses, potentially attracting a diverse range of tenants.
Potential for Leasehold Improvements
Leasehold improvements in commercial properties, such as office fit-outs, may enhance the property’s value and generate additional depreciation benefits.
Asset Control
SMSF trustees have direct control over the choice and management of the commercial property, allowing for strategic decision-making and customisation to align with the fund’s objectives.
When considering commercial properties within your SMSF, careful evaluation of investment strategy, risk tolerance, and unique property characteristics is essential. Consulting with financial advisors can provide tailored guidance based on individual circumstances.
If you’re exploring or already own commercial properties within your SMSF, Capital Claims Tax Depreciation is here to help. As experienced quantity surveyors and registered tax agents, we specialise in generating personalised depreciation schedules. Request a free quote online or call us at 1300 922 220 to explore how you can maximise your returns by claiming depreciation.
