If you have purchased a property in an smsf using a LRBA you CAN make improvements to the property.
You CANNOT use the excess funds that you have borrowed under this arrangement to make these improvements. You CANNOT borrow money from any source to fund the improvements.
You can use cash in the SMSF to pay for the improvements.
See links below:
http://www.qandamp.com.au/q-and-a/property
- Can I Renovate or Improve an SMSF property
Improvements
These are defined by the ATO as building works where the state or function of the asset is significantly altered for the better, through substantial alterations, or the addition of further substantial features to the asset. They may include renovating a kitchen, adding an extension or a pool. In this instance, the SMSF can only use existing funds to finance the improvements. These existing funds can be accumulated in the fund by building up cash from contributions or rent received. An SMSF cannot borrow to undertake improvements.
Finally, for properties that have been purchased using borrowings in an SMSF, the ATO will not allow improvements that result in a change to the underlying nature of the property while the loan is still outstanding. For example, you cannot establish a borrowing arrangement to purchase a single dwelling and subsequently use SMSF cash to convert it into a block of investment units ? at least not until the loan has been completely repaid and the borrowing arrangement has ended.
If you are thinking about property improvements through your SMSF, you should consider seeking professional advice from a qualified financial adviser.
I note the second paragraph which mentions you can not make improvements that result in a change to the underlying nature of the property while the loan is outstanding.
I read this as meaning no granny flats, no subdivision no conversions to flats. I don't think this is intended to mean that you can't put in a new kitchen or add a pergola as this in my opinion doesn't change the nature of the property. I think it would be extremely restrictive for improvements not to be allowed and it doesn't really follow the Sole Purpose test in that the property is mean to provide for your retirement, naturally you should be able to improve it to grow your wealth, while still maintaining the underlying nature of the property.
Would be interested in hearing your thoughts on this.
You CANNOT use the excess funds that you have borrowed under this arrangement to make these improvements. You CANNOT borrow money from any source to fund the improvements.
You can use cash in the SMSF to pay for the improvements.
See links below:
http://www.qandamp.com.au/q-and-a/property
- Can I Renovate or Improve an SMSF property
Improvements
These are defined by the ATO as building works where the state or function of the asset is significantly altered for the better, through substantial alterations, or the addition of further substantial features to the asset. They may include renovating a kitchen, adding an extension or a pool. In this instance, the SMSF can only use existing funds to finance the improvements. These existing funds can be accumulated in the fund by building up cash from contributions or rent received. An SMSF cannot borrow to undertake improvements.
Finally, for properties that have been purchased using borrowings in an SMSF, the ATO will not allow improvements that result in a change to the underlying nature of the property while the loan is still outstanding. For example, you cannot establish a borrowing arrangement to purchase a single dwelling and subsequently use SMSF cash to convert it into a block of investment units ? at least not until the loan has been completely repaid and the borrowing arrangement has ended.
If you are thinking about property improvements through your SMSF, you should consider seeking professional advice from a qualified financial adviser.
I note the second paragraph which mentions you can not make improvements that result in a change to the underlying nature of the property while the loan is outstanding.
I read this as meaning no granny flats, no subdivision no conversions to flats. I don't think this is intended to mean that you can't put in a new kitchen or add a pergola as this in my opinion doesn't change the nature of the property. I think it would be extremely restrictive for improvements not to be allowed and it doesn't really follow the Sole Purpose test in that the property is mean to provide for your retirement, naturally you should be able to improve it to grow your wealth, while still maintaining the underlying nature of the property.
Would be interested in hearing your thoughts on this.