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What changes have been made for SMSFs and property?

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I have a self-managed super fund and have been trying to get to a stage where I could put some property into my fund. I have always been turned off because of the restrictions that meant you could not renovate the property, which meant it reduced the chances of really enhancing the capital gain. I have heard that this rule against renovating a property inside super has changed. Is this true? Can I buy land and put a house on it inside my fund? And could I eventually draw out the house when I retire?

From the outset, let me say that the rule or restriction about renovating a house inside your super fund hasn’t been changed but the tax office has put out a draft ruling, which indicates a change of mind.

Before acting, I recommend you get advice from an expert in property and super, but let me outline what my expert team is telling me. Yes you could buy land and put a house on it and it would be easily done if you had, say, $1 million in super and the land and house could be bought for, say, $500,000 and so you didn’t have to borrow. Lenders can place restrictions on their clients and so you need to be up with that.

That said, the draft ruling has basically led to experts saying that where once you could have a house or a flat and the best you could do was repair and paint the place to maintain its status as an income-earning asset, now the ruling suggests you can renovate it and improve it so you could turbocharge the value of the property.

However, there’s an insistence that you can’t change the nature of the property and so you couldn’t turn a house into three townhouses but you could add a room, a roof conversion and you could also add a swimming pool!

On the subject of could you draw the house out of the super fund on retirement, the answer is yes, provided you were retired and in pension mode. When you’re in that status, you can draw out lump sums of any size and so if you can draw $500,000 out of a fund, say worth $1.5 million, there shouldn’t be any reason why you couldn’t draw out a house of that value. I think you can see that there’s enormous value in securing advice when you’re planning to set your sights on such a venture.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Wednesday, October 12, 2011

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