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SMSF - buying vacant land and building
Topic Started: 23 Dec 2016, 11:09 AM (1,113 Views)
Rastus2
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Quick question for the Brains Trust.

If anyone else has already gone down this path, I would be interested... (Yes I will be getting professional advice in addition to this thread ;) )

Considering what to do with some cash in SMSF and am tempted to buy a vacant block pretty close to our home and then build/move a house on there to setup a nice (Air)BNB for a bit of income down the track.

Seems the LRBA (Limited recourse borrowing arrangements) and ATO SMSF rules make it quite a risky path to alter the fundamental nature of any asset purchased via the SMSF. It can be a breach of your SMSF legal obligations to buy an asset (vacant land), and alter it in such a way it becomes another asset (house and Land).

http://law.ato.gov.au/atolaw/view.htm?docid=SFR/SMSFR20121/NAT/ATO/00001 is a bit of a buzz kill for borrowers in SMSF.

None the less, if you use 100% of your SMSF's funds and no borrowing, it seems that buying vacant land and "altering" the nature of that asset by building/subdividing is allowed, according to some of the claims made by "Experts" in the internet.


Anyone come across this before ?
Edited by Rastus2, 23 Dec 2016, 12:06 PM.
Shadow - Defrauded his Bank ? 2015 I have 9 different loans and my bank had no idea which ones were personal and which were investment. They had half of them classed incorrectly. When this change came in they asked me to tell them if any personal loans were incorrectly classed as investment, which I did, and they switched them to personal for the lower rate. They also had a couple of investment loans incorrectly classed as personal. They didn't ask me about those. So they stay on the lower rate too. Worked out pretty well. :)
Shadow - 2008 Sydney Median House Price 1.25M by 2014-2015

Shadow : I think this boom has already begun in several cities. My prediction :
Peak of boom: 2014-2015. Sydney Median Price: $1,250,000 Bottom of bust: 2017-2018. Sydney Median Price: $1,100,000

Shadow's Original 2010 House Boom and Crash prediction http://s836.photobucket.com/user/rastus22/media/shady-orig-2010-chart.png.html?sort=3&o=0

Shadow's attempt to edit his 2010 chart in 2015 and replace it with one that does not show a crash in 2013 http://s836.photobucket.com/user/rastus22/media/Screen%20Shot%202015-06-06%20at%207.12.52%20pm_1.png.html
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herbie
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While I've not looked at buying land and then building on it through a SMSF, everything you've written in general lines up with my general understanding of purchasing property through SMSFs.

So I'd be a bit surprised if a SMSF couldn't buy land and then build providing no borrowing was required.

However, as you indicate, it would be one to make very certain of before proceeding with loss of compliance for a SMSF being a very bad thing.

PS: Just depending what you have in mind when you say "build", I'd be asking some questions about stuff like whether the dwelling can be 'owner built' - Even if no borrowing is required - Because I would be a bit surprised if the regs permit that. (And you could well even be treading on thin ice if you had visions of physically doing 'finishing off' stuff like the landscaping and paths and fencing etc as the trustee - Rather than paying an arms length third party to do it.)
Edited by herbie, 23 Dec 2016, 07:42 PM.
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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doubleview
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herbie
23 Dec 2016, 07:02 PM
While I've not looked at buying land and then building on it through a SMSF, everything you've written in general lines up with my general understanding of purchasing property through SMSFs.

So I'd be a bit surprised if a SMSF couldn't buy land and then build providing no borrowing was required.

However, as you indicate, it would be one to make very certain of before proceeding with loss of compliance for a SMSF being a very bad thing.

PS: Just depending what you have in mind when you say "build", I'd be asking some questions about stuff like whether the dwelling can be 'owner built' - Even if no borrowing is required - Because I would be bit surprised if the regs permit that.
WTF - the Herbie mangled jibberish slang is gone??

May I suggest Be more careful next time - after a few friday beers double check and log in with the right account!

f***ing embarrassing

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herbie
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doubleview
23 Dec 2016, 07:39 PM
WTF - the Herbie mangled jibberish slang is gone??

May I suggest Be more careful next time - after a few friday beers double check and log in with the right account!

f***ing embarrassing
Consider it me Chrissy pressie ta all them poor illiterate dumb f***s out there wot don't savvy Strine maybe? (Well, not my illiterate busted arsed ole BB Qld version of it anyway) ... :)
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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Rastus2
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herbie
23 Dec 2016, 07:02 PM
While I've not looked at buying land and then building on it through a SMSF, everything you've written in general lines up with my general understanding of purchasing property through SMSFs.

So I'd be a bit surprised if a SMSF couldn't buy land and then build providing no borrowing was required.

However, as you indicate, it would be one to make very certain of before proceeding with loss of compliance for a SMSF being a very bad thing.

PS: Just depending what you have in mind when you say "build", I'd be asking some questions about stuff like whether the dwelling can be 'owner built' - Even if no borrowing is required - Because I would be a bit surprised if the regs permit that. (And you could well even be treading on thin ice if you had visions of physically doing 'finishing off' stuff like the landscaping and paths and fencing etc as the trustee - Rather than paying an arms length third party to do it.)
Thanks, that is how I understand it also... don't want to raise any red flags at all... not interested in doing an owner build, or getting a relative who might be a builder to construct a house for me.


Want to replace a couple of washers in your SMSF rental by yourself, no probs... want to install an air conditioner yourself or get a relative to do it ... big problems.


Truth is, I would be happy to pay someone an agreed price to move an old Queenslander onto the block and hook up to services... then pay another professional to tidy it up and make it attractive... very minor works, I may consider doing myself, but it would be very minor stuff... even mosing the lawn would have to be done with some degree of hands off.... sigh... can't even pay the kids to do it.
Moving an old Queenslander seems like a very tempting option if you do your research and sums beforehand.

It seems we could legally manage the Air BnB also... as the land is right next to kur property, it is tempting to consider.
Edited by Rastus2, 23 Dec 2016, 09:23 PM.
Shadow - Defrauded his Bank ? 2015 I have 9 different loans and my bank had no idea which ones were personal and which were investment. They had half of them classed incorrectly. When this change came in they asked me to tell them if any personal loans were incorrectly classed as investment, which I did, and they switched them to personal for the lower rate. They also had a couple of investment loans incorrectly classed as personal. They didn't ask me about those. So they stay on the lower rate too. Worked out pretty well. :)
Shadow - 2008 Sydney Median House Price 1.25M by 2014-2015

Shadow : I think this boom has already begun in several cities. My prediction :
Peak of boom: 2014-2015. Sydney Median Price: $1,250,000 Bottom of bust: 2017-2018. Sydney Median Price: $1,100,000

Shadow's Original 2010 House Boom and Crash prediction http://s836.photobucket.com/user/rastus22/media/shady-orig-2010-chart.png.html?sort=3&o=0

Shadow's attempt to edit his 2010 chart in 2015 and replace it with one that does not show a crash in 2013 http://s836.photobucket.com/user/rastus22/media/Screen%20Shot%202015-06-06%20at%207.12.52%20pm_1.png.html
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herbie
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Rastus2
23 Dec 2016, 07:53 PM
Thanks, that is how I understand it also... don't want to raise any red flags at all... not interested in doing an owner build, or getting a relative who might be a builder to construct a house for me.


Want to replace a couple of washers in your SMSF rental by yourself, no probs... want to install an air conditioner yourself or get a relative to do it ... big problems.


Truth is, I would be happy to pay someone an agreed price to move an old Queenslander onto the block and hook up to services... then pay another professional to tidy it up and make it attractive... very minor works, I may consider doing myself, but it would be very minor stuff... even mosing the lawn would have to be done with some degree of hands off.... sigh... can't even pay the kids to do it.
Moving an old Queenslander seems like a very tempting option if you do your research and sums beforehand.

It seems we could legally manage the Air BnB also... as the land is right next to kur property, it is tempting to consider.
Keep it 'reasonable' perhaps is my thought? - I've certainly mowed myself ('n claimed the cost of the mower fuel plus driving to 'n from the property to do the mowing as personal contributions - Tho would be rather leery of doing so re money I'd paid to rellies to do same.)

I've even splashed some paint around. 'N laid some tiles - Both of which are rather more substantial than just replacing some tap washers (which yes, is the ATO 'example' I've seen quoted as being 'acceptable' too.)

But anyway, with neither splashing some paint around nor doing some maintenance type tiling having caused any hassles in audits - Wif no attempt being made to hide I'd done them - As in receipted costs of materials were claimed as member contributions but no claims for third party labour were made, it's a somewot 'grey' area I suspect?

But anyway Yes, there's no way in f*** I'd stick me neck out 'n whack on a deck meself! (Even though there is no debt on the property.) That would be just out 'n out begging for a stern wrist slap I expect?

'N me, I prefers ta keep me potential warnin' up me sleeve.

Always remembers there's three things wot can still potentially shatter/harm ya financially even in ole herbie's debt free world:

1. Bustin' up wif some sheila

2. Venturin' inta a business venture wot fails (tho often they tend ta have some debt agin 'em?)

3. Havin' tha ATO notice ya a genuine cnt 'n as a consequence decide they genuinely hates ya - LOL

Tho even then ya can likely expect 'em ta treats ya way better financially than tha sheila ya busted up wif ... LOL LOL LOL
Edited by herbie, 24 Dec 2016, 12:26 AM.
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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Rastus2
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herbie
23 Dec 2016, 11:11 PM
Keep it 'reasonable' perhaps is my thought? - I've certainly mowed myself ('n claimed the cost of the mower fuel plus driving to 'n from the property to do the mowing as personal contributions - Tho would be rather leery of doing so re money I'd paid to rellies to do same.)

I've even splashed some paint around. 'N laid some tiles - Both of which are rather more substantial than just replacing some tap washers (which yes, is the ATO 'example' I've seen quoted as being 'acceptable' too.)

But anyway, with neither splashing some paint around nor doing some maintenance type tiling having caused any hassles in audits - Wif no attempt being made to hide I'd done them - As in receipted costs of materials were claimed as member contributions but no claims for third party labour were made, it's a somewot 'grey' area I suspect?

But anyway Yes, there's no way in f*** I'd stick me neck out 'n whack on a deck meself! (Even though there is no debt on the property.) That would be just out 'n out begging for a stern wrist slap I expect?

'N me, I prefers ta keep me potential warnin' up me sleeve.

Always remembers there's three things wot can still potentially shatter/harm ya financially even in ole herbie's debt free world:

1. Bustin' up wif some sheila

2. Venturin' inta a business venture wot fails (tho often they tend ta have some debt agin 'em?)

3. Havin' tha ATO notice ya a genuine cnt 'n as a consequence decide they genuinely hates ya - LOL

Tho even then ya can likely expect 'em ta treats ya way better financially than tha sheila ya busted up wif ... LOL LOL LOL

No red flag would be my mantra... if I want to slip over and paint a bit, or mow the lawn, I suspect no-one would give a crap... if I try to claim money out of my SMSF to cover those expenses, I would consider that a red flag as money is clearly being spent from the SMSF and an audit would show it was paid to me ... so my philosophy would be that any such minor work would be a simple way for me to preserve/improve my income in retirement... if the cost/effort is such that I don't want to do it for free, I should not even consider doing it myself.

After all, we have another IP out of our SMSF that I can legally put money and effort in, and claim as required... just focus my work on that one if I am really bored down the track.

As for the ATO.. yup, used to know a mid level investigator many years ago. She was happy to talk about the way their teams worked. Certainly motivated me to keep my nose clean.

Only ever been audited once and they were only really interested in my IP at the time. Turned out to be quite a simple and painless exercise as I had already kept very good records and made their life pretty easy with zero red flags to worry about. None the less, I have no doubt that it could turn ugly very quickly if there was anything to uncover... once they get a sniff, they keep digging till they justify the expanded costs.

Shadow - Defrauded his Bank ? 2015 I have 9 different loans and my bank had no idea which ones were personal and which were investment. They had half of them classed incorrectly. When this change came in they asked me to tell them if any personal loans were incorrectly classed as investment, which I did, and they switched them to personal for the lower rate. They also had a couple of investment loans incorrectly classed as personal. They didn't ask me about those. So they stay on the lower rate too. Worked out pretty well. :)
Shadow - 2008 Sydney Median House Price 1.25M by 2014-2015

Shadow : I think this boom has already begun in several cities. My prediction :
Peak of boom: 2014-2015. Sydney Median Price: $1,250,000 Bottom of bust: 2017-2018. Sydney Median Price: $1,100,000

Shadow's Original 2010 House Boom and Crash prediction http://s836.photobucket.com/user/rastus22/media/shady-orig-2010-chart.png.html?sort=3&o=0

Shadow's attempt to edit his 2010 chart in 2015 and replace it with one that does not show a crash in 2013 http://s836.photobucket.com/user/rastus22/media/Screen%20Shot%202015-06-06%20at%207.12.52%20pm_1.png.html
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