New ATO Self Managed Super Fund (SMSF) Investment Property Rules
Property investing within Self Managed Superannuation Funds (SMSFs) is on the rise according to recent ATO SMSF Statistics. However for some time there have been some major draw backs that limited an SMSF’s investor’s choice as they were not allowed to renovate an existing acquirable asset. This is looks like it is about to change.
New SMSF Rules For Property Investors
One of the newly drafted rulings from the ATO states a Self Managed Super Fund trustee will be allowed to renovate an investment property if the improvement is done using the available funds within superannuation, so in simple terms, the money used to renovate cannot be borrowed money. It gets even more complicated; the renovation cannot change the nature of the property asset as it stands, for example, you can’t convert a house into a duplex or warehouse. The asset must retain its original qualities.
What the new SMSF rules mean for you
Maybe this is a great leap in providing superannuation investors with better avenues to invest into property. The idea that superannuation is about maximising your savings for a nice comfy retirement is now more a reality than a fantasy for many Australians. Being able to maximise your property asset via renovation could close the gap in your retirement funding.
Property Investing and Renovations
Many property investors suggest that renovating is a great way to add capital value to an existing investment property. For example adding new bathroom, bedroom or kitchen or extension could increase the value of the investment property by hundreds even thousands of dollars.
When will the ATO ruling become finalised?
Again a word of caution the draft ruling is not set in stone as yet, remember it’s only a draft. You can view the draft ruling publicly by clicking here.
If the ruling is finalized and issues after it goes through approval, the new ruling can be applied to property invested into via a SMSF most likely after the 7th July last year, 2010.
Seek professional advice
Warning, be very careful, as good as this idea sounds the ATO may not be very forgiving if you get it wrong or if you structure your superannuation fund incorrectly. Make sure you seek proper financial, legal and tax advice before doing anything like buying and renovating within your SMSF.
Also if you’re buying through a self-managed super fund and you will be relying on rental yields to pay for the loan then some recommend caution with buying properties that require a total renovation.
Final tip for SMSF property investors
Another tip when considering any kind of renovation project that requires architects, and construction professionals including the cost of additional building materials you need to be mindful of the costs and that the expenses don’t blow out of proportion otherwise you may find you super fund drying up and becoming illiquid. Get all building and construction quotes in writing and make sure the costs are fixed where possible, to minimize the risk of over spending. Also consider that no rental yields will be coming into the fund, so you will need to make sure there are sufficient funds in there to cover any loan costs while you are renovating.
In either case whether you renovate or not, get good advice, keep a long term view and plan ahead to make sure you get the most out of your superannuation assets.