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Borrowing in super and property

Renovated super tax laws to boost property appeal for SMSFs

Andrew Hewison
Managing Director
19 Oct 2011

The “renovation” of the laws surrounding borrowing in super and property is a welcome development for Self Managed Super Fund (SMSF) members who will now be able to upgrade properties owned within their superannuation fund, but there are boundaries investors must beware of, according to Hewison Private Wealth.

Last week, the Australian Taxation Office announced a relaxation of the laws surrounding borrowing in superannuation to invest in property which will allow SMSFs to ‘value add’ and increase its worth. Under the existing rules for properties owned by superannuation funds, improvements such as renovations or major repairs could not be made to the asset.

Andrew Hewison, Director and Private Client Adviser at Hewison Private Wealth, said while the ATO ruling changes the game for DIY super fund investors there are important distinctions fund trustees need to be aware of.

“The headline impact of these changes is that investors are no longer restricted to purchasing properties, via their superannuation fund, that are ready for leasing. They can now purchase a property and add value via capital improvements which is a big win for investors,” Mr Hewison said.

“However, it is important that SMSF trustees understand that while borrowed funds can be used to make essential repairs, such as replacing gutters or fixing fire or flood damage, which previously would not have been allowed; improvements such as renovations and extensions can only be funded via the cash flow within the superannuation fund. This is a critical distinction,” Mr Hewison said.

But the rules don’t apply to everyone.

“Developers shouldn’t get too ahead of themselves, as the draft ruling does not allow for the development of a piece of land, for instance, knocking down an old house and building a block of flats. The ATO has made clear the improvements must not fundamentally change the nature of the investment,” he said.

“Overall, this will be a landmark change and a step in the right direction for SMSFs and borrowing,” he said.

Download article Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.