Can you knock down and rebuild an SMSF property?

By Grace Ormsby

August 02 2019
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Individuals wanting to knock down and rebuild a property for SMSF purposes should be wary of the potential legal ramifications, a lawyer has warned.

Jeff Song, a solicitor with Townsends Business and Corporate Lawyers, has flagged a number of superannuation compliance issues that may arise where property developers attempt to undertake development on their SMSF-owned properties.

“In short, it is possible to develop a property in your SMSF and still comply with superannuation laws,” Mr Song said.

However, he added that anyone considering such a project needs to be aware “that developing a property in your SMSF is not for the faint-hearted, as it will attract greater scrutiny from the auditor and the ATO”.

“Also, it may not just be a question of law, and you may need to discuss with your financial advisers and accountants before committing to any such investment,” he continued.

With a knock down and rebuild “likely to be considered as running of a business”, Mr Song said that extra caution needs to be taken so that any development doesn’t breach superannuation laws, inclusive of the sole purpose test.

“Like any other investment, the property development must be for the sole purpose of providing retirement benefits for the members,” Mr Song said.

While this is not always a simple question, the lawyer said that, at a practical level, it means an individual, or anyone related to the individual, “cannot make personal use of the property or unreasonably benefit from the investment”.

“If you are thinking of building a holiday house for your personal use, then look for another investment vehicle,” he cautioned.

The investment must also be allowed “under the current trust deed and be in line with the investment strategy of the fund”, Mr Song said, before advising that legal advice should be sought to check whether any amendment to a trust deed is required.

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About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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Retirement