Property depreciation within SMSF

[Ralph1]

Hi all.
I am still new to all this and trying to get my head around it.
I am looking at buying a property in the SMSF, my financial manager is telling me I need to buy a new property to take full advantage of the depreciation.
My accountant has mentioned not to worry to much about that, buy new or old. In the SMSF the tax rate is only 15% and not your personal tax bracket which Is much higher, so you won't be receiving as big a depreciation return from the SMSF as you would if it was in your own name.

Eg
Property in your own name - 37% tax bracket

Same property in SMSF - 15% tax bracket

Same depreciation schedule

Do you get a higher return with it in your own name?

Do you need to buy brand new or is buying something that is older and has a twist still a good investment.

I hope that makes sense.

Ralph

 

[depreciator]

I am looking at buying a property in the SMSF, my financial manager is telling me I need to buy a new property to take full advantage of the depreciation.

When your 'financial manager' said this, did he also say, 'And I just happen to know somebody with a brand spanking new property they can sell you.'

 

[Terry_w]

When your 'financial manager' said this, did he also say, 'And I just happen to know somebody with a brand spanking new property they can sell you.'

ha ha - this is what crossed my mind too.

What is a 'financial manager'?

 

[coastymike]

maybe he is a boxer. they have financial managers. so do movie stars.

 

[Paul@PFI]

Hi all.
I am still new to all this and trying to get my head around it.
I am looking at buying a property in the SMSF, my financial manager is telling me I need to buy a new property to take full advantage of the depreciation.
My accountant has mentioned not to worry to much about that, buy new or old. In the SMSF the tax rate is only 15% and not your personal tax bracket which Is much higher, so you won't be receiving as big a depreciation return from the SMSF as you would if it was in your own name.

Eg
Property in your own name - 37% tax bracket

Same property in SMSF - 15% tax bracket

Same depreciation schedule

Do you get a higher return with it in your own name?

Do you need to buy brand new or is buying something that is older and has a twist still a good investment.

I hope that makes sense.

Ralph

Ralph - Your accountant is correct. Each $1k of deductions represents $150 of tax savings in SMSF v's around $350-$400 in personal names. That said if its a SMSF property it wouldn't be in personal names so a comparison is a bit irrelevant.

Also remember that for a SMSF the loss on the IP may offset contributions tax. Strategy wise its a bit foolish to leave contributions going to the industry fund to maintain insurance. Better to consider a minimal balance in industry fund and receive contributions to SMSF and then do a rollover from the SMSF to the industry fund annually etc.

Post 1987 properties are eligible for capital allowances. Obviously newer properties and those with large extensive common areas (pools, lifts carparks, sprinklers etc) have more of this to claim.

 

[speary]

Your accountant is correct in that there is a reduced benefit, however, that is not a reason not to get a schedule done. The same logic applies when getting a schedule for a property owned by yourself, you should get one unless a quantity surveyor tells you it isn't worth it.

 

[CosmicTrevor]

Hi all.
I am still new to all this and trying to get my head around it.
I am looking at buying a property in the SMSF, my financial manager is telling me I need to buy a new property to take full advantage of the depreciation.
My accountant has mentioned not to worry to much about that, buy new or old. In the SMSF the tax rate is only 15% and not your personal tax bracket which Is much higher, so you won't be receiving as big a depreciation return from the SMSF as you would if it was in your own name.

Eg
Property in your own name - 37% tax bracket

Same property in SMSF - 15% tax bracket

Same depreciation schedule

Do you get a higher return with it in your own name?

Do you need to buy brand new or is buying something that is older and has a twist still a good investment.

I hope that makes sense.

Ralph

If your "financial manager" (I'm guessing "Financial Planner") suggests the primary reason for purchasing a certain property is for greater depreciation benefits I'd sack them. Believe your accountant and lawyer. The deductibility is important of course, but I'd be more concerned about the net yield and CG forecasts.

 

[Rixter]

What is a 'financial manager'?

Maybe his 'Trouble n Strife', or otherwise affectionately known is my household as the 'Leader of the Opposition'.

 

[Scott No Mates]

Ralph - Your accountant is correct. Each $1k of deductions represents $150 of tax savings in SMSF v's around $350-$400 in personal names. That said if its a SMSF property it wouldn't be in personal names so a comparison is a bit irrelevant.

In other words, for every $1k in your super, you are losing $850 or if its personal between $600-$650.

Hard decision, would I prefer to lose more money or less?

 

[Terry_w]

Maybe his 'Trouble n Strife', or otherwise affectionately known is my household as the 'Leader of the Opposition'.

That makes sense!

 

[Vixs]

Maybe his 'Trouble n Strife', or otherwise affectionately known is my household as the 'Leader of the Opposition'.

Had a client tell me he needed to confirm a proposed meeting time with 'The Minister for War & Finance'.

Cracked me up.

 

[Paul@PFI]

When considering depreciation I find software like PIA (Property Investment Analysis) provides a great example of the end to end merits of depreciation. Obtaining a tax deduction is one thing. Its effect on cashflows may be material. For example through a higher refund or lessening tax on other income etc.

End to end cashflows for property are far more important matters than maxing a tax deduction. I'm wary of anyone selling property that mentions and promotes the tax benefits of neg gearing etc...Yes its a benefit but the benefit must be measured. A high cashflow property may become an aweful purchase v's a cashflow +ve one when tax benefits are measured.

PIA http://www.somersoft.com.au/software.htm is as cheap as chips if its guides a smart acquisition.