Forum Replies Created
Great post on your blog, thanks Evolve.
This issue is so contentious, I've pretty much decided to buy off the plan instead, making sure the land and building are both in the one contract. Can't get into trouble that way.
It's a shame really, however I can see the ATO's point, that adding value by using the fund's own money to improve the property puts more of the fund at risk than just the original asset.
Thanks everyone!
Scott No Mates – you are right, it makes no sense. I guess that renovations may be construed as property development, which can be risky. The new rule hasn't been thought through, I feel.
Evolve, thanks, I have spoken to more SMSF people, including a couple of lawyers, everyone has a different opinion. Some say it's perfectly fine to use non-borrowed funds to renovate/improve or even add a granny flat to the property. Some have said no way. I spoke to someone in ATO compliance, who could offer no opinion, just advised me to get a ruling, or speak to a financial planner.
Sigh, I'll keep going…
I appreciate everyone's thoughts on this.
Wow, thanks LR, that gives me much more confidence about the improvement issues.
There are replacement issues also, in Section 67a and b of the SIS act (and in the Explanatory Memorandum) that don't make sense commercially ie an asset cannot be replaced, nor can the fund receive cash instead. I've been advised there are groups currently lobbying into having these changed.
Kris from EvolveMySuper has been very helpful to me with all this, he is also currently writing an ebook about SMSFs and property – someone needs to!
I'll update this post as I go…
Thanks again for your reply.
Thanks for looking into this Mike, your answer makes sense.
I've since been looking into ATO rules on replacement assets, and also what constitutes substantial vs cosmetic renovations. Cosmetic renovations are allowed apparently. Although lots of examples are given, the info seems contradictory or ambiguous.
I am concerned that as work is done on the property, it will be very easy to cross the line into "substantial renovations", and at audit time a private ruling would probably have to be made by the ATO. The fund could easily become non-compliant.So it looks like the best sort of property to buy will be a fairly new one, or a totally renovated one, neither of which need anything done. Although I'll have to look into the replacement asset rules more closely.
