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Hi all, SMSF currently hold a land under its name. No loan obligation has been undertaken.
My question is whether the SMSF can build a residential house on that land with its own funds.
Thank you in advance.
Rajesh
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Many thanks for your clear reply supported with example. Will be of great assistance to us.
Thanks
Rajesh
Hi Rajesh
Yes a SMSF that fully owns land can build a residential house on it using its own funds.
Due to the limited recourse borrowing arrangement (LRBA) rules a Fund can not borrow to fund a new building on land it already owns.
A great reference for the LRBA rules is SMSFR 2012/1 SMSFs - LRBAs - application of key concepts.
An example in the ruling that provides guidance (if a LRBA was involved) is:
"Example 8 – house built in situ on land already owned by the SMSF
66. An SMSF owns a vacant block of land. The trustees of the SMSF want to enter into an LRBA to construct a house in situ on the block of land.
67. The house cannot be a single acquirable asset under section 67A. As the house is built in situ it does not exist as an asset separate from the land that can be held on separate trust. Money borrowed to build the house effectively results in the acquisition of services and building materials. These acquisitions would not satisfy the LRBA requirement that the arrangement involves the acquisition of a single acquirable asset. "
Thanks
SMSF AAA