Repairs/renovation to a property purchased in a SMSF

[The Trump]

Hi guys

I have a question with regard to a property purchased through a SMSF.

If a property is purchased by a SMSF utilising existing funds (ie. no borrowing's).

In terms of any repairs/renovation's to the property can the SMSF utilise additional cash available within the fund to pay for those renovations.

Or is it case that you would need to pay for the repairs/renovations from your own personal funds.

Any help is most appreciated

Cheers

 

[jrc]

you would need to use resources from within the fund. Resources provided from outside the fund would be a contribution to the fund. You might need/want to use your personal cash, but if so the simplest way would be to make an additional contribution to the fund if you are able (ie comply with requirements eg work tests etc if applicable) and then use the cash when its in the fund to pay

 

[Paul@PFI]

There are many concerns that can arise if the fund trustee/members undertake reno's etc to a fund property.

Tax Ruling TR 2010/1 deals with "What is a contribution" and this issue gets some mention. Ideally the fund should not acquire anything from a member. eg a reimbursement can be considered an acquisition too !! Non-arms length concerns are something to consider. eg : A member is a builder and does the work and its invoiced etc. It may be arms length. BUT it may fail the s66 prohbition on acquiring from a member (or a relative or a "associate"). Its not the contribution issue itself that poses the concern. Its the prohibition is s66.

If the fund engages arms length people to do work and it pays the costs directly then no concerns should occur. Reimbursing a member who acquires furniture from a store etc is also no concern provided receipts are available.

Can the fund reimburse for labour & travel. No
Can the members do minor work ie clean etc . No
Can the members do work and never charge the fund to avoid the s66 problem. No.

 

[twodogs]

Hi guys



In terms of any repairs/renovation's to the property can the SMSF utilise additional cash available within the fund to pay for those renovations.



Cheers

Hi Paul,

Can the additional funds come from a loan FROM a member? This is not a contribution and the fund would have a repayment schedule for the loan and interest, fully documented of course.

 

[Paul@PFI]

No. A fund must not borrow except some exceptions contained in s67 SISA. (Superannuation Industry Supervision Act 1993)

A related party loan MUST only comply with s67A and if the fund already owns property, it won't work. s67(7) reminds that contravention is a criminal offence.

There is a way if a member in the fund is aged 60+ and no longer working. A contribution can be made that can be used for the intended purposes of renovation lets say. Then after as the fund builds its cash it can make payments to a member under a condition of release. Its not a loan. No interest. But it can satisfy a non-concessional (untaxed) contribution and also meets an income stream.

Also consider if contrubution timing can be changed ?? ie July 1 the employer pays the expected full year contributions ? Thats not a loan either. Just a timing issue.