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Renovating a property owned by your SMSF

While an SMSF may borrow money to purchase a property using a limited recourse borrowing agreement (LRBA), there are strict regulations surrounding the use of borrowed funds to renovate and improve properties. While you may be able to purchase an older property and renovate it using borrowed money, you are restricted from ‘improving’ the property, for example by building an additional storey or adding a swimming pool. If you are unsure as to whether the changes you have planned would be considered an ‘improvement’, it is advisable to seek the advice of the ATO.

You are, however, permitted to improve a property using funds from other sources, typically the accumulated contributions to the fund. For this reason, if making improvements to the property is central to your investment strategy, you need to ensure that your fund has sufficient cash flow to see these changes through.

Here are some other tips for renovating a property owned by your SMSF:

-All of the materials must be purchased in the SMSF name, even if you are carrying out the renovations yourself

-You may not be paid for any work you complete unless you are a professional tradesman who offers the same services to the public

-you may not live in the property at any stage, even if you are renovating it yourself

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Investing in shares vs property in SMSFs

March 19, 2020

Shares and property are two popular investment options for those with a self-managed super fund (SMSF). However, they both have very different attributes and choosing the one that will achieve the best outcome for an SMSF depends on your personal goals and situation.

While the price of shares can vary drastically, property is a relatively stable asset, making it appealing to those who want more security and predictability. Property prices are also negotiable unlike shares, and you can generally borrow money at a lower rate for property purchases.

It may seem hard to find the perfect investment property, but older and undercapitalised properties can be renovated for profit. However, returns from property rentals can be dented due to factors such as land tax, utilities and rates, maintenance and tenancy vacancies.

Shares are more dynamic and volatile than property. One advantage is the accessibility of investing in shares, as you can enter the share market with a few thousand dollars – much less than what you need to invest in a property.

Maintaining a portfolio of quality shares that pay tax-effective dividends may be a good way to fund retirement. With the right portfolio allocation, shares also have the potential to provide a better, stronger income than property rentals, as long as that income is sustainable and increasing.

Property can generally be used as a wealth-creation tool, while shares can create a reliable retirement income. For those who can afford to put more money into investments, it may be a good idea to consider investing and diversifying in both. If you’re unsure about which investment option is right for you, seeking financial advice may be the best option.