SMSF borrowing and property repairs and improvements

The ATO has published Draft Self Managed Superannuation Funds Ruling SMSFR 2011/D1 relating to limited recourse borrowing arrangements (LRBA) by a self managed superannuation fund (SMSF) with particular reference to real property. In particular the ATO ruling states that "The money borrowed under the LRBA (and secured by the single acquirable asset) may be applied not only in acquiring the acquirable asset but also in carrying out repairs and maintenance to the asset whether necessary at the time of its acquisition or at a later time. " But the ATO states that "No amount that has been borrowed by the SMSF trustees under the LRBA may be applied to improve the single acquirable asset. If a trustee of an SMSF expends borrowed money to improve a single acquirable asset, the exception in section 67A will cease to apply to the LRBA. If the borrowing is maintained the trustee will contravene section 67." The ruling sets out, amongst other things, the ATO's policy on distinguishing between maintaining, repairing and improving a single acquirable asset.

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