FREE JOB Placements

 Change Trustee of your SMSF $220

 Declaration of Trust $165

 SMSF Loan Agreement $110

 Binding Death Nomination $55

Adverise your Jobs for FREE 

Setting up a Limited Recourse Borrowing Arrangement (LRBA) for your SMSF is just the first step in the journey to ensuring to fully utilize the investment and tax benefits of borrowing to purchase property within their super fund.

Depreciation is fundamental to ensuring a geared property held by an SMSF can be used to reduce tax paid by the fund. A smart salary sacrifice strategy used in conjunction with an LRBA arrangement can be used to further reduce the members overall tax liability.

In order to successfully maximize depreciation claimed on the property, whilst staying on the right side of the ATO, you can benefit from a Quantity Surveyor's (QS) Report that is based on a full and expert physical inspection.

Quantity Surveyor Report enables you to claim depreciation expenses against rental income for residential or commercial properties. That depreciation can then be claimed in the SMSF's income tax return.

In addition to depreciation, the ongoing costs of holding the property, including repairs, rates, strata fees and interest paid on the LRBA can also be offset against rental income, resulting in the SMSF paying less tax and optimizing cash flow.

Once you order a QS report by clicking here, our tax depreciation specialists will visit the property to conduct a full physical inspection. This service will mean your SMSF can claim the maximum deductions possible. Your report will be available within 10 working days of application. The cost of the QS report is also a deductible expense in the year you pay for it.

What is depreciation?

The ATO acknowledges that, as assets age, their value declines. Thus as an asset reaches the end of its useful life, it can be written off as a tax deduction. This is called depreciation.

Each item attached to, or part of, the property purchased by an SMSF - whether that asset is a clothes hoist or kitchen cupboards -- will have a different "useful life" for the purposes of depreciation. Depreciation claims for capital works can be particularly complex - a very good reason to encourage a site inspection by a tax depreciation specialists for a full physical inspection.

Basing any deductions included in an SMSF's tax return on a physical inspection the QS report will ensure your SMSF can maximize both Capital Works deductions and those associated with the Decline in Value of assets and Plant.

Why we recommend a full physical inspection instead of a web based cheap report?

Qualified inspectors, like our professionals, have the expertise and knowledge to know which items and can't be depreciated. They keep up to date with ATO rulings and changes so they know and are familiar with all current depreciation rates. Their approach means your SMSF will avoid making claims for items that can't be depreciated, whilst getting the best tax outcome possible.

Reports prepared by members of the Australian Institute of Quantity Surveyors (AIQS) are more accurate as they are specialists in preparing QS reports for investment properties.

Some QS websites offer quick-turnaround reports at what appear to be discount prices. However, such sites include a fine-print disclaimer that the surveyor has not conducted a physical inspection of the property. In other words, the report may contain significant inaccuracies and omit details that could result in a much better taxation outcome for the tax payer.

We strongly recommend that you do not use these quick web reports. Only a full inspection of the property can deliver an accurate depreciation claim including details such as accurate measurements for building sizes and identification of all plant that can be depreciated.

How Depreciation reports distinguish between Capital works versus Plant?

The first step is to identify which items are structural improvements and which items are plant and then to determine the correct rate of depreciation to use for each item.

Capital works or structural improvements include deductions if the investor has spent money on construction of buildings, structural improvements or other depreciating assets that are fixed to, or part of, a building or structural improvement. Of course, accountants need to take note of SMSF restrictions around structural improvements to properties held as part of an LRBA.

Plant includes 'articles' and 'machinery', such as curtains, wall hangings, desks, book cases. Items attached to the land or forming part of the premises cannot be claimed as articles. Machinery can be claimed whether or not it forms part of the premises.

Capital works deductions can usually be claimed at between 2.5% and 4% per year in the 40 years following construction. They include building construction costs, the cost of altering a building or cost of capital improvements to the surrounding property. If you purchased a property already built, an expert Quantity Surveyor can also assist you with necessary information about its construction.

Real estate agents, accountants or solicitors are not qualified to make accurate estimates of construction costs for the purposes of making capital work claims.

QS reports  commences from the settlement date of the property purchase and is useful for the life of the investment unless the SMSF undertakes new capital works or purchases/replaces assets, in which case they will need an updated schedule.

QS reports should include both a schedule of capital allowances for depreciable assets and another for the decline in value of depreciable assets. Click here to learn more.

Many accountants and advisers remain confused about how frequently - and by whom - assets need to be valued within an SMSF.

The first thing is to ensure that your SMSF trust deed has been updated to include the new rules introduced in August 2012 in particular SISR 8.02B, click here to see what is included in our SMSF trust deed.

Let's start with the basics. When valuing SMSF assets, the ATO will expect the valuer to demonstrate that the valuation has been arrived by using a "fair and reasonable" process.

In order that a valuation of SMSF assets is considered fair and reasonable: the process used can be explained to a third party; all variables that might affect the asset's value have been considered; it's been conducted in good faith; and the process used is rational and reasoned.

Why and when do SMSF assets need to be valued?

Arguably an SMSF's assets need to be valued regularly to establish the true capital value of the fund. This obviously has a significant impact on returns to members and should underpin the preparation of meaningful financial reports for the fund.

The main purpose for conducting asset valuations is to ensure an SMSF is compliant with superannuation laws when:

1. Putting together its annual statements and accounts
2. Acquiring and disposing of assets between the fund and related parties
3. Making and maintaining "arms length" investments
4. Selling collectables and personal use assets to a related party
5. Ensuring the market value of in-house assets remain below the threshold of total assets within the fund
6. Calculating the proportion of assets which support a particular member's pension

For more detail about beneficial and legal ownership of assets in a super fund, consider Tax Ruling 2010/1

Who has to conduct the valuation?

The ATO clearly states that it is more concerned about the process used to value an asset within an SMSF than it is about who conducts the valuation. Their main concern is that the valuation must be based on "objective and supportable data".

This is particularly important if an SMSF client is undertaking a related party transaction - where there can be temptation to inflate or deflate the asset value to achieve the desired outcome between parties. Who you will need to choose to conduct the valuation, will depend on the particular situation. 

Some situations legally require the use of a qualified and independent valuer:

• From 1 July 2011 a qualified independent valuer must be used for collectables and personal use assets acquired on or after that date and disposed of to a related party.
• If an appointed auditor wishes to seek an independent valuation of the fund's investments as part of their audit and compliance engagement

The ATO also recommends appointing a qualified, independent valuer to conduct a valuation if the asset in question represents a significant proportion of the SMSF's total capital value. Likewise, some assets by nature can be complex or difficult to value - another good reason to call in the experts.

For other purposes, the ATO refers to an appropriate valuer as someone who is a registered valuer, a member of a professional valuation organization, or a professional valuation service provider. However, it can be an unqualified person if, instead of formal qualifications, the individual has specific knowledge or experience in the relevant area.

Three engineers and three accountants were traveling by train to a conference. At the station, the three accountants each bought tickets and watched as the three engineers bought only one ticket.

"How are three people going to travel on only one ticket?" asked an accountant.

"Watch and you'll see", answered an engineer.

They all boarded the train. The accountants took their respective seats, but the three engineers all crammed into a rest room and closed the door behind them. Shortly after the train departed, the conductor came around collecting tickets. He knocked on the restroom door and said, "Ticket, please".

The door opened just a crack and a single arm emerged with a ticket in hand.

The conductor took it and moved on.

The accountants saw this and agreed it was a quite clever idea. So, after the conference, the accountants decide to copy the engineers on the return trip and save some money (being clever with money, and all that). When they got to the station, they bought a single ticket for the return trip. To their astonishment, the engineers didn't buy a ticket at all.

"How are you going to ride without a ticket"? said one perplexed accountant.

"Watch and you'll see", answered an engineer.

When they boarded the train, the three accountants crammed into a restroom and the three engineers crammed into another one nearby. The train departed. Shortly afterward, one of the engineers left his restroom and walked over to the restroom where the accountants were hiding.

He knocked on the door and said, "Ticket, please."

SAPTO - also known as the Seniors and Pensioners' Tax Offset -- applies from the 2012-13 financial year and can potentially be used to reduce the taxable income of some seniors to zero.

It replaced the old Senior Australian Tax Office and Pensioner Tax Offset.

Of course, you must check that you meet the eligibility conditions before claiming the offset. During the financial year the taxpayer must've:

1. Been eligible for a pension, allowance or benefit under the Veterans' Entitlement Act 1986
2. Reached pension age under that Act, and
3. Not been in gaol

Alternatively, they must have qualified for:

1. The age pension under the Social Security Act 1991
2. Meet the age requirement for the age pension under that Act, and
3. Not been in gaol

Once you've established that you client meet one of above criteria, the next step will be to look at whether you are below the rebate income threshold to either receive the maximum tax offset or any offset at all.

Rebate income, for the purposes of determining eligibility, includes the client's: taxable income, adjusted fringe benefits amount, total net investment loss, and reportable super contributions.

In the table below, to qualify for the Maximum Offset shown in column 3, the taxpayer's rebate income would need to be below the 'lower threshold'. The 'Maximum Offset' is then reduced by 12.5 cents for every dollar of rebate income over the 'Lower Threshold'. Once the client's rebate income exceeds the 'Upper Threshold', the rebate is reduced to nil.

Another dodgy SMSF property deal has recently been highlighted by ASIC. This time SMSF promoters have advertised a 'tax-free' $100,000 incentive if an SMSF invests in residential properties through the National Rental Affordability Scheme (NRAS).

See ASIC's warning about the advertising claims here.

The NRAS is run by the Commonwealth and state and territory governments as a scheme to promote investment in affordable housing for low and middle-income earners. The upside is that the scheme rewards investors with payments and offsets if they build and lease housing to low and moderate income earners.

The downside is that the investor must charge rent on the property at a rate that is at least 20% below market value.

The only way that an SMSF or individual investor can invest in a NRAS project is through an approved participant. That participant is under no obligation to pass on any of the incentives offered to that individual or SMSF. In fact, the participant will only receive those incentives themselves if they meet certain criteria.

Those incentives are also only available if the investor stays in the scheme for a minimum of 10 years.

ASIC has also warned that the purchase, tenanting and management of properties under the scheme can also involve fees and costs for the end investor that may make them even less attractive.

The Australian Department of Social Services, which runs the scheme, followed up the ASIC warning by recommending that, if approached by anyone promoting the NRAS, you shouldn't give any personal details and certainly shouldn't consider an SMSF investment.

If anybody is approached in this manner, the DSS also encourages the reporting fraud of such activity.

Register Now

WWW.TRUSTDEED.COM.AU 

HOW IT WORKS

Our oline ordering system is very simple, once you are registered with us, log in and answer to our smart and easy structured questions - clues and explanations are provided. Once you pay our low fee, perfectly customized legal documents are emailed to you, instantly.

The whole process takes not more than 20 minutes!