When you decide that you wish to borrow to purchase an investment property in your Self Managed Super Fund (SMSF) there a number of factors which you must consider that differ from a regular borrowing arrangement outside super.  Repairs Vs Improvements

One key area is that you are not allowed to use borrowings make improvements to the property.  The Superannuation legislation states money cannot be used to improve an asset of the fund because it would fundamentally change the nature of the asset which is used as security by the lender.  The reason for the legislation is that by changing the nature of the asset you are potentially increasing the risk to the fund – even if you do not consider this the case.

Whilst improving a property is not allowed under the Superannuation legislation, you may repair the property. The purpose of the repair must only be to ensure that the practical value of the property is not diminished. This means if you buy a property through your SMSF you can draw down from the loan over time to cover costs of maintaining and repairing the property.

According to the ATO’s draft ruling a repair will be allowed when you are replacing something that has become damaged or warn out or fixing something that has been damaged from wear and tear. It is irrelevant whether the damage is accidental or deliberate.

It is important to note that renovating a rundown house would not constitute a repair. This would be considered an improvement to the asset, which would not be allowed with borrowings under a limited recourse borrowing arrangement (LBRA).

There are a number of other factors the must be considered before buying a property with your superannuation. It is strongly advisable that you seek the advice of a qualified SMSF Specialist Advisor before undertaking this strategy.

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Thomas Jacks BCom (Acc), SMSF SpecialistTM, Adv. Dip F.S. (FP)
“I want to be able to assist clients with their investment and retirement planning by providing real strategy advice. It’s my aim to not only help my clients but to educate them by addressing the entire picture” Google Plus

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