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Purchasing property through a Self Managed Super Fund

Benefits of an SMSF

Self Managed Super Funds (SMSF), sometimes referred to as DIY funds, offer greater control and choice over the investment assets of a superannuation fund as well as increased retirement planning benefits. A SMSF can have up to four members, making it a popular option for family groups. SMSFs are also popular for small business owners as they can purchase their business real property within their SMSF at market value and then lease it back on fair market terms.

Purchasing property through your SMSF

In addition to commercial property, your SMSF can also be used to purchase residential investment property as long as the fund allows it and the asset purchase fits within certain rules including the sole purpose test, meaning that any asset purchase is to provide retirement benefits to members or their dependants upon the death of the member.

An investment property cannot be purchased from a member of the fund or a related party, therefore it is not possible to buy your family home within your SMSF.  There are also restrictions around who the property can be rented to. Generally, it is not possible for members of the SMSF or their relatives or other related parties to the fund to reside in, even on a temporary basis, any residential property owned by the SMSF.

This is to avoid a benefit being gained before retirement. The return from the property must be the focus of making the investment.

Your SMSF can co-own a residential property asset, however the rules around renting the property to a family member or related party still apply. Such rules typically do not apply to a business real property. Co-ownership arrangements can be complex so it is recommended you seek expert advice in this area.

Property investment – whether commercial or residential – must be consistent with your fund’s investment strategy and careful consideration needs to be given to the fund’s ability to pay for all expenses related to the property. For example, an SMSF can borrow funds to purchase a property but must be able to repay the loan and there should be sufficient money within the fund to cover additional or unexpected costs.


Borrowing funds means a larger amount of capital can be invested and a property purchased sooner, and concessional super contributions can then be used to fund repayments. However, there are restrictions on borrowing money within an SMSF to purchase property and loan conditions differ to that of regular housing loans.

A limited recourse borrowing loan arrangement is needed, also the property must be kept separate from the fund’s other assets to ensure that the other assets are protected in case the fund defaults on loan repayments.

It is important to be aware of the risks. Property may reduce in value, it may be difficult to find tenants, or interest rates could rise increasing repayments. This could result in a lower investment return or the lender repossessing the property in the event of a loan default.

Only minor renovations and improvements can be carried out on properties that have been purchased under a limited recourse borrowing arrangement. If renovations or improvements are paid for directly and not from within the SMSF, the value of the improvement will need to be recorded as a contribution made to the fund so consideration should be given to contribution caps.

What if I already own an investment property?

If you already own an investment property, transferring that property into your SMSF is usually not allowed, however your SMSF may be able to acquire a property you already own if it used entirely for business purposes. If you have a business real property, you can transfer the property in to your SMSF as a personal contribution or sell the property to the fund, or a mix of both. When making a personal contribution non-concessional contribution limits must be taken into account and it may be necessary to transfer part of the property value with the balance of the property’s market value purchased by your SMSF fund.

Each state and territory has different rules and fees which may apply when transferring a property into an SMSF. Consideration also need to be given to capital gains tax if the property was initially acquired after 1985.

Rules around super contributions are constantly changing so it is recommended you speak with a financial planner or SMSF expert to determine if buying a property in your SMSF is right for you and your circumstances. CHN Herold Ross provides a specialist service to the trustees of SMSFs, contact us today on 03 9870 1300.

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