Can an SMSF renovate a property?
This is a question that comes up a lot.
“Can my SMSF renovate a property it owns?”
The short answer is:
Yes.
But it depends on what kind of work you’re doing, and whether the property has a loan.
This is where things can get confusing.
So let’s break it down in a simple way.
The key idea: repairs vs improvements
When it comes to SMSF property, everything comes back to one distinction.
Is the work a repair?
Or is it an improvement?
That difference matters, especially if your SMSF has borrowed to purchase the property.
Repairs and maintenance
Repairs are generally straightforward.
They are works that bring the property back to its original condition.
For example:
fixing a leaking roof
replacing broken windows
repainting existing areas
repairing plumbing or electrical issues
These are usually allowed.
They don’t change what the property is.
They just keep it in working order.
Improvements
Improvements go further than that.
They change or enhance the property.
For example:
adding a new room
extending the building
major structural upgrades
converting the property into something different
This is where the rules become more important.
If your SMSF does NOT have a loan
If the property is owned outright, things are more flexible.
Your SMSF can generally carry out improvements.
But you still need to make sure:
the property remains a suitable investment
everything aligns with the investment strategy
all work is done on commercial terms
It still needs to fit within the purpose of the fund.
If your SMSF DOES have a loan (LRBA)
This is where most issues happen.
When a property is purchased using a loan, the structure has stricter rules.
The key principle is:
The asset needs to remain fundamentally the same.
So while repairs are fine, major changes are not.
What is usually allowed
repairs and maintenance
minor updates that don’t change the nature of the property
What is usually not allowed
major renovations that change the structure
subdividing land
building new dwellings
turning one property into multiple properties
These types of changes can breach the borrowing rules.
Why these rules exist
When an SMSF borrows, the loan is tied to a specific asset.
That asset needs to stay consistent.
If it changes too much, it may no longer meet the requirements of the borrowing arrangement.
Who pays for the work?
All costs need to be handled through the SMSF.
This means:
the SMSF pays for all repairs or improvements
members cannot pay personally and get reimbursed
any work done by related parties must be at market rates
Keeping everything within the SMSF is important.
Where issues usually come up
Most problems happen when the distinction isn’t clear.
Common examples include:
treating improvements as repairs
carrying out major works under a loan structure
using related parties without proper documentation
mixing personal funds with SMSF expenses
These are areas the ATO continues to monitor.
What happens if the rules are not followed
If the structure is breached, it can lead to:
penalties for trustees
audit issues
the SMSF being treated as non-compliant
This is why it’s important to assess things before starting any work.
The key takeaway
An SMSF can renovate a property.
But the answer depends on two things:
what kind of work you’re doing
whether there is a loan in place
Getting that distinction right at the beginning makes everything easier.
How we can help
We focus on SMSF setup and compliance, including property structures.
This includes:
reviewing whether planned works are compliant
making sure the structure supports what you’re trying to do
helping you avoid issues before they happen
supporting ongoing compliance and reporting
If you’re thinking about renovating an SMSF property, it’s worth understanding how the rules apply first.
We are a specialised accounting firm focused on SMSF, with over 20 years of experience working with investors. We have supported 300+ SMSF setups.
Our work focuses on structure and compliance, particularly for property and LRBA arrangements.
If you’re thinking about using your super for property, it’s worth understanding how this applies to your situation.[Book a Free Consultation]
Disclaimer
Real Accounting does not hold an Australian Financial Services Licence (AFSL) and does not provide financial product advice. This article contains general information only and does not take into account your objectives, financial situation, or needs. Before establishing an SMSF or implementing any borrowing arrangement, you may wish to seek advice from a licensed financial adviser to assess whether it is appropriate for your circumstances.
