If you own a property in a personal capacity, you would understand that general and specific repairs and maintenance occur to maintain an investment property.
It is becoming increasingly popular for SMSFs to purchase an investment property and renovate the property to a standard which is ‘Available for Rent’. A property is generally available for rent once the house has running water, working lights, locks on all the doors and is suitable for tenants to live in.
Tax Considerations
There are certain tax advantages that SMSF Trustees can utilise when purchasing and renovating a property within the SMSF. Firstly, the purchase price of the investment property and the renovation cost will make up the total purchase price of the property as the expenses incurred in renovating the property are able to be capitalized and included in the value of the asset. This is then expensed over the useful life of the property rather than being expensed in the period the cost was incurred. For further guidance relating to ‘Availability for Rent’ please see the button below.
Depreciation Consideration
Depreciation is a strategic way for SMSF Trustees to claim depreciation expenses on the SMSF Tax Return. The SMSF can depreciate the property on a straight line method or on a diminishing value method. Rather than depreciating the asset over 40 years, the asset can be depreciated in a more time-effective manner which will the time-value of money and maximise the SMSFs deductions will the Members are in accumulation phase. The Trustees of an SMSF can use the services of BMT Tax Depreciation Quantity Surveyors. For further guidance in relation to exactly what BMT do, please see the button below.
