Section 67A of the Superannuation Industry (Supervision) Act permits a SMSF to borrow money for the purpose of acquiring a single acquirable asset.

The borrowed money can also be used to pay:

1.    Expenses incurred in the asset purchase; and

2.    Maintaining or repairing the asset.

The borrowed funds can not be used to improve the asset.  If you wish to improve the asset you are required to use other funds in the SMSF.

Draft Self Managed Superannuation Fund Ruling (SMSFR 2011/D1) has a table detailing examples of the differences between repairs and maintenance versus improvements.  This is relevant if the trustee is considering redrawing on the loan to make improvements as improvements are strictly forbidden.  If you wish to improve and / or renovate the property you will need to use separate funds from that of the loan advanced.

If you wish to do more than renovate / improve the property, i.e., fundamentally change the character of the asset so that it becomes a different asset, the trustee will be contravening the SIS Act unless the loan has been discharged prior.