Central Coast Mortgage Brokers

SMSF Property Investment – Repairs or Renovations?

When a SMSF takes out a loan for a SMSF property investment, the borrowing is a limited recourse loan. This means that the acquired asset is the only asset that can be used as security.

Because the rights of the lender are limited to the rights relating to the single acquirable asset (or a replacement in limited instances) no money can be used to improve the asset if it results in a different one.

The ATO recently provided some clarification for those who have borrowed for a SMSF property investment.

The update means that those who had planned renovations or repair work on the SMSF property investment, now have a better understanding of whether borrowings can be used to pay for the work, depending on whether the work is ‘maintenance’, ‘repair’ or ‘improvement’.

For instance, work to repair damage to the property with similar materials and to a similar standard, counts as repair and borrowings can be used to finance the work.

However, if improvements are made at the same time, they cannot be paid for by borrowings.Central Coast Small Business Accountants

An example is a fire that destroys a kitchen. To replace the kitchen to the same standard, using modern equivalent materials, counts as a repair.

Deciding to expand the kitchen at the same time, counts as an improvement. Small additions such as installing a dishwasher where there wasn’t one before can still be called a repair.

If a SMSF owns a property that is debt free, can it borrow to fund repairs and maintenance to the property? No, the SMSF is only able to borrow to repair or maintain the property if the property was acquired under a limited recourse borrowing arrangement and the borrowing is still on foot.

When borrowing for a SMSF property investment using a limited recourse borrowing arrangement, it is possible that repairs and maintenance could be considered an improvement to the asset.

This update sets out to clarify a very important distinction, as improvements can change the state or nature of the asset to such an extent that it may be considered a different asset to the single acquirable asset, subject to the borrowing arrangement.

Contact Us

AIMS Accounting Service
22 Swindon Close
Lake Haven NSW 2263
Phone: 02 4392 8720

Small Business News

Managing inventory is an essential part of your business, however, it can be a drain on your cash re [...]

“There’s no such thing as bad weather, only unsuitable clothing.” So goes the saying. Most indoor wo [...]

Five organisations have secured a total of $1.4 million in grants from LaunchVic to deliver programs [...]

In today’s ever increasing online world, domain names have become one of the most important business [...]

I spent all of last week travelling around Australia with one of my clients. She heads up innovation [...]

The opportunity for small to medium sized businesses to make the switch to solar and batteries is st [...]

Four years ago, Sydney’s Frank Andrews began to transition away from a nearly 20-year career in the [...]

Startup founders that overlook co-working spaces that aren’t ‘geographically desirable’ might miss o [...]