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A new ruling by the Australian Taxation Office has given self-managed superannuation fund members the ability to use money from inside their fund to renovate their property.
Previously, the ATO said SMSFs could not use money from any source to improve property.
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However, under the draft ruling DIY super funds can now potentially install swimming pools, larger kitchens and add extensions to improve the value of the property.
Charterhill Group Chartered Accountants chief executive officer George Nowak told The Adviser that the draft ruling would ultimately make real estate a more attractive option to the $420 billion SMSF sector.
“We have been in support of this outcome since the 7th July 2010 when the remodelled legislation was delivered. It is an absolutely positive move,” he said.
According to Mr Nowak, the drafted legislation clarifies some nuances of error in the original legislation.
“The ATO understands that the future buoyancy of the property market will be heavily dependent on SMSFs’ investing in property as well as providing rental occupancies for younger people.
“This new drafted legislation, which will almost certainly become law, addresses everything everyone I have spoken to in the industry has been scratching their heads over.”
But while SMSF trustees will be able to renovate using money within their funds, borrowing to renovate will remain prohibited.
Ken Raiss, director of Chan & Naylor, told The Adviser, the prohibition of borrowing to renovate property held in a SMSF was very difficult to understand.
“Hats off to the ATO – a lot of good things have come out of this draft ruling,” he said.
“The fact that you can now renovate, with non-borrowed money, is very good.
“But the main problem is that the ATO’s draft ruling neutralises or diminishes the sole purpose test which is to provide retirement benefits to members.”
With the ability to manufacture capital growth through renovation a big drawcard for property investors, the same capacity should also be available through SMSFs, he said.
“If you’re looking to provide retirement income you should be allowed to maximise it.”
Mr Raiss said he hoped the ATO would consider this when it came to finalising the ruling in the next month or so.
