If you’re thinking of giving your home a total makeover using your SMSF, think again. Unfortunately, while you and your fellow trustees have some control over your fund, it doesn’t mean you can spend your money however you like.
The ability to renovate a residential property that you own through an SMSF comes down to how you purchased it. Those who borrowed through their fund to buy the property are restricted in what they can do. Slight improvements and repairs can be made, but a full-blown renovation is saved for those who used the cash in their fund to buy the property.
“If you used the cash in your fund to buy a property outright, then you can absolutely do whatever you want, provided your SMSF deed allows you to do so,” advises Samantha Bright, Director and Investment Finance Specialist at Thrive Investment Finance. “You can sub-divide, you can develop, you can pretty much do anything.”
Those who borrowed through their fund aren’t entirely prohibited on making improvements on their property. Repairs are allowed, but they can’t be vast alterations that change the inherent character of the property.
“You can make the property more rentable by updating things, but you can’t go and completely gut it and change it,” says Bright. “If you really want to do some renovations and you had to borrow, the best way is to go outside your superfund.”
Choosing to renovate your property ultimately comes down to increasing its value, but in order to do so, you have to be mindful how you go about it, advises Bright.
“Everyone wants to be a property developer, right? There’s no use dropping a whole heap of cash in a property where nothing in that street is in the same condition and it’s above the price point. You’ve got to be conscious on what you’re spending money on and what you’re doing.”
Whether you’re renovating to repair with borrowed funds or doing a complete makeover with accessible cash, renovating through an SMSF is only worthwhile if it improves the return on your property exponentially. Not playing by the rules or accessing your SMSF prior to retirement for personal gain can result in hefty penalties with fines up to 40 per cent of the fund value. Speaking to a mortgage broker who specialises in and is educated in SMSF, can help determine whether it’s beneficial for you to renovate through an SMSF or to find an alternative. In addition it’s very important to speak with your financial adviser and accountant too.