Wednesday, 14 September 2011
By: Staff Reporter – www.spionline.com.au

A draft ruling by the Australian Taxation Office has given self-managed superannuation fund members the ability to use money from inside their fund to renovate their property.

Previously, the ATO said SMSFs could not use money from any source to improve property, however, under the draft ruling they can potentially renovate to improve the value of the property.

Charterhill Group Chartered Accountants chief executive officer George Nowak told Smart Property Investment that the draft ruling would ultimately make real estate a more attractive option to the $420 billion SMSF sector.

“We have been in support of this outcome since the 7th July 2010 when the remodelled legislation was delivered. It is an absolutely positive move,” he said.

According to Mr Nowak, the drafted legislation clarifies some nuances of error in the original legislation.

“The ATO understands that the future buoyancy of the property market will be heavily dependent on SMSFs’ investing in property as well as providing rental occupancies for younger people.

“This new drafted legislation, which will almost certainly become law, addresses everything everyone I have spoken to in the industry has been scratching their heads over.”

But while SMSF trustees will be able to renovate using money within their funds, borrowing to renovate will remain prohibited.

Ken Raiss, director of Chan & Naylor, told Smart Property Investment, the prohibition of borrowing to renovate property held in a SMSF was very difficult to understand.

“Hats off to the ATO – a lot of good things have come out of this draft ruling,” he said.

“The fact that you can now renovate, with non-borrowed money, is very good.

“But the main problem is that the ATO’s draft ruling neutralises or diminishes the sole purpose test which is to provide retirement benefits to members.”

With the ability to manufacture capital growth through renovation a big drawcard for property investors, the same capacity should also be available through SMSFs, he said.

“If you’re looking to provide retirement income you should be allowed to maximise it.”

The spring selling season has brought with it increased supply levels, finally.

Melbourne is finally starting to see a boost in auction numbers for the spring selling season, which appears to have started late this year due to growing concerns about the health of the economy and property market.

There were 626 auctions scheduled around the city on 17th September, which is the highest supply level seen for a Saturday in months but still comparatively low for this time of year.

The number of properties that have gone up for auction in September is down 16 per cent compared with the past two years, but about on par with the stock level seen during the 2008 global financial crisis.

Yesterday, the auction clearance rate was 57 per cent for the 540 results reported to the Real Estate Institute of Victoria. The outcomes of another 86 sales are still unknown.

With such a significant proportion of properties still passing in at auction, the consensus seems to be that it is vendors with quality properties or those willing to meet market expectations – either when setting a reserve or during after-auction negotiations – who stand a good chance of a successful outcome at the coalface.

Take the example of 47 Armstrong Street in Middle Park, a three-bedroom Edwardian that was quoted during the sales campaign at $1.4 to $1.5 million. But when it was clear that interest was at a lower level, the owners chose to set a more modest reserve.

”The feedback was below what we were chasing. The vendors were very motivated to sell, and that’s why they set a lower reserve on the day because that’s where the market was indicating its true value,” said Karl Gillon, managing director of Buxton Albert Park.

The property, which attracted a crowd of more than 150 people and four active bidders, was declared on the market at $1.3 million and sold for $1,345,000.

In Cremorne, more than 100 people gathered for the auction of 56 Chestnut Street, with six bidders emerging from the pack to bid on the three-bedroom townhouse. An opening genuine offer of $810,000 kicked off the frenzied competition that did not end for another hundred bids.

Declared on the market at $910,000, the hammer did not fall until $1,021,000. Biggin & Scott Richmond had quoted it at $800,000-plus.

Two bidders could not get 40 Balwyn Road in Canterbury over the line, with the six-bedroom house passing in at $2.9 million. Jellis Craig declined to comment, but sources say the property later sold for just over $3 million.

Source: Domain

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