Renovating an SMSF-owned property
Whether and how you can renovate an SMSF-owned property depends on whether the property is under an LRBA (a Limited Recourse Borrowing Arrangement) or owned outright by the fund.
Property owned outright (no LRBA)
If your SMSF owns the property without a loan — either because it was purchased with cash or the LRBA has been fully repaid — the SMSF can renovate freely:
- Major renovations, structural changes, and extensions are all permitted
- The renovation costs are funded by the SMSF from its own resources
- Division 43 capital works deductions apply to structural improvements
- Division 40 plant and equipment deductions apply to new fixtures and fittings installed
- All deductions reduce the SMSF's taxable income (at 15% in accumulation phase)
Property under an LRBA
This is where restrictions apply. Under the superannuation regulations (SISR 67B), during an LRBA the SMSF can only make improvements that:
This means that while an LRBA is in place:
- Cosmetic updates (repainting, recarpeting, replacing appliances) — generally permitted
- Structural changes that change the character of the property (adding a room, converting use type) — not permitted
- Demolition and rebuild — not permitted (this changes the asset entirely)
Depreciation for SMSF renovations
Any capital works completed on an SMSF property are claimable as Division 43 deductions in the SMSF. New plant and equipment installed during the renovation is Division 40. A quantity surveyor depreciation schedule should be updated to include renovation costs.
Practical advice
If you are planning significant renovation, consult your SMSF administrator and legal advisor before proceeding. The rules are strict and violations can have serious regulatory consequences.