Tax Office set to change rules for SMSF investors

A new draft ruling released by the Australian Tax Office (ATO) has relaxed rules for those buying properties in their self-managed superannuation fund (SMSF).

Previously SMSF investors were allowed to maintain their properties but were restricted from making improvements to them. This stance had discouraged some investors from dabbling in property investment through their SMSF because of the strict regulations. 

It is expected that this long-awaited change will have the most impact on cheaper properties in need of some TLC. These properties are now more appealing because SMSF investors would be able to conduct renovations to add value and improve the rental return.

While improvements are now permissible, they will only be able to be conducted if they are funded by cash resources in the SMSF and not borrowings. There are also restrictions on the types of improvements that can be made. Examples of allowable improvements include extensions and bigger kitchens, but the key is that improvements must not “fundamentally change” the property.

The ATO has also taken this opportunity to clarify other grey areas regarding property investment and SMSFs. They confirmed that unlike improvements, SMSFs may borrow funds to undertake repairs provided the repairs do not change the character of the dwelling. 

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