Take extra care with self-managed super fund property

Self-manged super funds (SMSFs) hoping to gain tax relief for repairs and improvements to a fund-owned investment propertyshould act with particular caution if the property is geared.

Under superannuation law, money borrowed by an SMSF under a limited recourse loan arrangement must be used only to buy and maintain the property – not to improve it.

Crucially, a fund can use its own money to improve a property – not borrowed money – provided those improvements are not so extensive so as create a new asset, according to a final tax ruling released in May last year.

Graeme Colley, director of technical and professional standards for the Self-Managed Super Fund Professionals’ Association, explains that an SMSF in the accumulation phase is entitled to claim the same types of tax deductions as individual investors who buy properties in their own names.

For instance, an SMSF can claim deductions for loan interest, repairs, any shortfall between the deductible expenses and the rent, and depreciation.

And SMSFs can claim capital works deductions.

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