As the real estate market continues to offer promising investment opportunities, savvy investors are exploring different avenues to maximise their returns. One such avenue is the use of a Self-Managed Superannuation Fund (SMSF) to invest in property. While purchasing real estate for investment purposes with your SMSF is a relatively straightforward process, renovations or improvements to these property assets can be a little more complicated.
An SMSF is a superannuation fund that is managed by its members, offering individuals greater control over their retirement savings. Investing in property through an SMSF can provide attractive tax benefits and the potential for long-term capital growth. But while buying property through an SMSF is common practice, you may not be aware that structuring property improvements within an SMSF can also be an effective strategy to enhance the value and returns of your investment.
Here are some key points to consider when making upgrades or improving real estate assets through an SMSF:
- Renovations and Repairs: Making strategic renovations and repairs to the property can increase its market value, rental income, and desirability. However, it is essential to ensure that any improvements made are in line with the sole purpose of providing retirement benefits to the SMSF members.
- Funding Property Improvements: When considering property improvements, SMSF members have several options for funding these projects. The most common methods include using available cash reserves within the SMSF, seeking a limited recourse borrowing arrangement (LRBA), or leveraging funds from member contributions.
- Compliance and Documentation: To remain compliant with the Australian Taxation Office (ATO) regulations, it is crucial to maintain accurate records of all property improvements, including invoices, receipts, and contracts. These documents will be required for audit purposes and demonstrate that the improvements are solely for the purpose of increasing investment returns.
There are also some tax considerations to keep in mind when looking to make upgrades or improvements to your investment properties.
- Deductibility of Expenses: Certain expenses incurred during property improvements within an SMSF may be tax-deductible. These may include costs related to repairs, maintenance, or upgrades. It is important to consult with our accounting firm to determine the specific deductibility of these expenses based on your individual circumstances.
- Capital Gains Tax (CGT): When a property held by an SMSF is sold, capital gains tax may apply. However, by holding the property for at least 12 months, SMSFs may be eligible for a CGT discount of up to 33%. Our experienced accountants can assist you in navigating these tax implications and developing a tax-efficient strategy.
Structuring improvements to property investments within an SMSF can be a smart and effective approach to maximise returns and unlock the full potential of your property portfolio. At PCR, our team of expert estate planning accountants and investment specialists can guide you through the intricacies of improving real estate assets through an SMSF, helping you make informed decisions to achieve your financial goals. Contact us today on 03 9847 7516.
Disclaimer: This blog post is for informational purposes only and should not be considered as financial or legal advice. Consult with a qualified professional for personalised guidance based on your specific circumstances.
Owner of PCR Accounting & Advisory, Peter Marmara-Stewart is a top-tier accountant and financial advisor dedicated to helping clients reach their business goals and achieve financial freedom. Peter is highly regarded for his client-focused approach and entrepreneurial spirit, catering to a diverse range of professionals across a wide scope of industries all across the country. Peter’s expertise can help you plan effectively, set goals, maximise profits and protect your assets. Get in touch today on (03) 9847 7516.