The Frustration Most SMSF Property Owners Feel
You’ve bought a property inside your SMSF.
You see the potential: a modest refresh could lift the rent, improve the valuation, and put you in a stronger position for future investments.
But then you hear it: “SMSFs can’t improve properties. It’s not allowed.”
That’s not entirely true.
The law isn’t saying don’t improve — it’s saying
“stay within the rules that protect the fund’s purpose.”
Knowing the difference between forbidden renovations and strategic, permissible upgrades can be the edge that grows your retirement wealth — while everyone else just waits for the market to rise.
Why Compliance Matters (and Why Most Get It Wrong)
SMSFs are governed by legislation designed to keep the fund focused solely on retirement benefits.
Where investors often stumble:
🛑 Borrowing restrictions:
If the property was purchased using a Limited Recourse Borrowing Arrangement (LRBA), you generally can’t use borrowed funds for improvements — only for repairs or maintenance.
⚖️ Improvement vs. repair:
The ATO makes a clear distinction.
- Repairs restore something to its original condition.
- Improvements add something new or better.
Mixing the two up can lead to costly compliance issues.
💸 Fund purpose:
All spending must be for the sole purpose of retirement savings — not for short-term personal benefit or to support a related party.
What You Can Do — Legally
Here are value-boosting moves typically allowed under SMSF rules (especially if the property is debt-free or if the work is classed as repair/maintenance):
✅ Refresh worn interiors:
- Repainting faded walls
- Replacing tired carpets or blinds
- Updating dated light fittings
✅ Fix what’s broken:
- Repairing a leaking roof or guttering
- Replacing cracked tiles or damaged plumbing
- Upgrading old wiring for safety
✅ Meet compliance and safety standards:
- Installing smoke alarms or fire-safety equipment
- Upgrading water or energy systems for efficiency
- Bringing the property up to current building codes
✅ Work on debt-free properties:
If the SMSF owns the property outright (no LRBA), you generally have more flexibility to improve it — such as upgrading kitchens or bathrooms — as long as the spending is made from the fund’s cash and aligns with the fund’s investment strategy.
What You Can’t Do (Common Missteps)
🚫 Adding a new bedroom or a second storey to a property still under LRBA
🚫 Constructing a granny flat or subdividing using borrowed money
🚫 Replacing the existing asset with an essentially new one
🚫 Making improvements that allow personal or family use of the property
These actions cross into prohibited territory and can trigger breaches, penalties, or the need to unwind the transaction.
Strategic Approach: Growing Value Within the Rules
The point isn’t just to avoid penalties — it’s to make decisions that actually lift the property’s long-term performance.
A simple playbook:
- 📋
Start with a condition report:
Understand what counts as repair versus improvement. - 📈
Align with your investment strategy:
Every upgrade should serve rental yield, asset longevity, or capital growth. - 🗂️
Plan your timing:
Focus on essential repairs while the property is under loan; plan capital-raising improvements after the loan is cleared. - 👥
Keep everything documented:
Thorough records of spending, classification, and approvals help prevent future compliance disputes.
You don’t have to sit back and hope the market does the heavy lifting.
Knowing which upgrades are allowed — and when to make them — can turn a good SMSF property into a stronger long-term performer.
Often, the smartest move isn’t the biggest renovation; it’s the one that adds value while keeping the fund squarely within the rules.
Start With An Obligation Free Consltation
Our Obligation Free Consultations are designed for you to ask us anything you like and start the process of uncovering a strategy suited to your circumstances.
