Claiming deductions on your super fund investment

According to the Australian Tax Office, close to 600,000 self-managed super funds are now in operation. Hardly surprising given the fairly ordinary results of retail super funds, the fallout from the GFC and the relaxation of SMSF rules in Australia.

Clients purchasing property within their super fund are entitled to claim depreciation deductions, and we’re completing more and more of these reports each day. A common trend we’re seeing is for business owners to purchase the building their business occupies as a tenant. It can be a great strategy from a security of location standpoint as well as capital growth.

It’s important that clients understand that this income producing property is entitled to claim depreciation, and regardless of the rate of tax (normally 15 or 30 per cent), the result of a depreciation schedule can be significant.

For example, we recently completed a report for a super fund, engaged by a client who bought two adjoining strata units within a small complex in Narellan, NSW.

Whilst the units were fairly small, the complex was constructed in June 2000 and the clients had undertaken a fitout to the tune of around $163,000.

As the units belonged to a strata titled complex, the super fund had an entitlement to claim a share of the common areas, as well as plant items such as fire extinguishers, door closers, lighting and more. The common property share of deductions was around $1,400 a year worth of deductions on its own.

The fitout included assets such as new air conditioning, carpet and vinyl, lighting, security, fire alarms and window blinds. However, the majority of the fitout value was capital works which features a lesser depreciation rate of 2.5 per cent per year, rather than plant assets ranging from 100 per cent to 10 per cent in this property. Capital works within a commercial office includes the structure itself and things like fixed cabinetry, ceiling tiles, gyprock and the like.

The net result of the combination of these assets equated to over $297,000 worth of total depreciation and over $16,700 worth of deductions within the first full financial year.

Whilst it’s easy to write about fantastic examples achieving super deductions, this property was a fairly modest and typical commercial office purchased by a super fund. Luckily the clients’ accountant ensured that a depreciation schedule was sought and we were able to find these savings.