Want To Do Renovations to your SMSF Purchase? Here is What You Need to Know

Want To Renovate Your SMSF Property? What You Need To Know

 

Self-Managed Super Funds (SMSFs) are a great way for Australian investors to save for retirement. But what happens if you want to renovate a property you’ve bought using the fund? There are some rules and regulations in place that you should know about before undertaking such a project. Let's take a look at what you need to consider when it comes to renovating an SMSF property.

 

The Rules Governing Renovations with SMSF Properties

If your SMSF has purchased a property and you're planning on making renovations, there are several rules and regulations that must be followed. Firstly, any renovation work must be done with the sole purpose of improving or maintaining the asset’s condition or value. Secondly, all renovations must be completed at arm's length - meaning that the trustee cannot pay themselves for any repairs or improvements made to the property.  Additionally, any services provided by related parties must be charged at a rate no less than what would be paid to an independent party providing similar services.  Finally, all renovation costs must be documented and kept on file for audit purposes.

 

Tax Considerations When Renovating With SMSFs

When renovating an SMSF property, there may also be tax considerations that need to be taken into account. Generally speaking, any renovation carried out in order to improve or maintain the condition of the asset is considered non-taxable income/expense. However, if any part of the renovation is not considered necessary – such as aesthetic improvements – then it could potentially incur capital gains tax (CGT). As such, it's important to speak with your accountant prior to starting any renovations so that you can understand exactly how much tax you may have to pay after the project is complete.

 

Funding Your Renovation Project

In order for your SMSF to carry out renovations on its properties, it will need access to additional funds beyond what has been allocated in its balance sheet. Generally speaking, these funds can come from two sources: loans from banks or from other members of your fund who contribute additional capital towards the project. It's important to note that loans taken out by your fund should only ever cover 80% of the total cost of renovations; otherwise, they may be classified as “in house assets” which could put your fund in breach of superannuation laws and attract hefty fines from regulatory bodies like ATO (Australian Tax Office).

 

Renovating an SMSF property can add significant value and help create greater returns for investors over time but it’s important that all relevant rules and regulations are followed throughout each stage of the process. This includes ensuring funds are sourced correctly; understanding tax implications; and ensuring that all works performed meet necessary standards while adhering strictly to arm's length requirements set by regulatory bodies such as ATO (Australian Tax Office). By following these guidelines, Australian investors can ensure their projects remain compliant while still enjoying potential financial benefits associated with their investments!

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