Self Managed Superannuation Funds can work wonderfully well if used properly and you play within the rules. There are many things Trustees are able to do as long as they meet what we call the "Sole Purpose Test". So what can you do with real property in an SMSF?
If you’re thinking of giving your home a total makeover using your SMSF, think again. Unfortunately, while you and your fellow trustees have some control over your fund, it doesn’t mean you can spend your money however you like.
The ability to renovate a residential property that you own through an SMSF comes down to how you purchased it. Those who borrowed through their fund to buy the property are restricted in what they can do. Slight improvements and repairs can be made, but a full-blown renovation is saved for those who used the cash in their fund to buy the property.
If you used the cash in your fund to buy a property outright, then you can absolutely do whatever you want, provided your SMSF deed allows you to do so. This includes but is not limited to subdivision, development, pretty much anything as long it meets the sole purpose test.
Those who borrowed through their fund aren’t entirely prohibited on making improvements on their property. Repairs are allowed, but they can’t be vast alterations that change the inherent character of the property.
You can make the property more attractive to prospective tenants by replacing (if damaged) or repairing fixtures and fittings, but you cannot improve the property. If you really want to do some renovations and you had to borrow, the best way is to go outside your SMSF.
Choosing to renovate your property ultimately comes down to increasing its value, but in order to do so, you have to be mindful how you go about it, advises the finance broker.
Whether you’re renovating to repair with borrowed funds or doing a complete makeover with accessible cash, renovating through an SMSF is only worthwhile if it improves the return on your property exponentially. Not playing by the rules or accessing your SMSF prior to retirement for personal gain can result in hefty penalties with fines up to 40 per cent of the fund value.
You should always seek professional specialist assistance in this area.
