Investing In Property in a SMSF

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Self Managed Superannuation
January 31, 2020
minute read

What you need to know when considering investing in property using your self-managed super fund

Investing in property can be a wise investment option.

However, it becomes a lot more complex if you’re considering investing in property using your self-managed super fund. It comes with its own set of specific criteria, and in some cases can differ greatly from a personal property investment.

But when done the right way, the long-term benefits can be tremendous.

If you’re considering investing in property in your SMSF, a Liston Newton SMSF adviser is available to help you through the process. Contact Liston Newton Advisory today to discuss your SMSF investment strategy.

How residential property works in a SMSF

While investing in property using your SMSF is similar to investing under your own name, there are a number of key differences to be aware of.

  • The property must be held in your SMSF's name. All income and expenses go directly to and from this account.
  • A property held by your SMSF can't be lived in by you, or anyone related to you or the trustee of the SMSF. The property must be rented out at market rates — so no rental discounts to your tenants.
  • While your SMSF can buy a residential investment property, you’re unable to transfer an existing residential investment property into the SMSF.

How much it costs

How much you pay depends on how you acquire the property. Typical costs to consider include:

  • Stamp duty
  • Legal fees: $2,000 – $5,000
  • Bank and settlement fees: $1,000 – $2,000
  • Advice fees: $3,000 – $5,000
  • If you choose to borrow to buy property, then you’ll need to set up a separate bare trust inside your SMSF. This can add an additional $2,000 – $3,000 in expenses.

Many people make the mistake of thinking they can cover expenses from their personal finances and then withdraw this back out. This is strictly prohibited. An individual can contribute money to their SMSF to cover expenses, but you can’t withdraw this money unless you’re eligible to start a pension.

Borrowing to buy


Borrowing money to buy property through your SMSF can be tricky , and involves a limited recourse borrowing arrangement (LRBA).

A LRBA works by establishing a separate property trust and trustee within your SMSF, which will hold the property on your SMSF’s behalf. This trust holds your property, while all expenses and income continue through your SMSF’s account as usual.

Your SMSF is required to meet all loan repayments. If it fails to do so, then the lender can only take recourse in the separate trust, not the remaining funds in your SMSF.

Considerations for borrowing

You face stricter criteria when borrowing for a property loan through your SMSF.

  • When considering using a SMSF to buy property with a mortgage, it’s recommended that you consult a mortgage broker or your bank first. You need to confirm if you even have the money in your fund to obtain the correct finance.
  • In general, financial institutions typically won’t lend to a SMSF if it has a balance less than $250,000.
  • Your loan will come at a higher cost, which needs to be taken into consideration when determining if the loan is a worthwhile investment.
  • All loan repayments are made through your SMSF, so it’s crucial that the necessary loan repayment funds are available. These funds can be provided to your SMSF through standard super contributions, or from the property’s rental income.

Renovating or improving property with a SMSF

Undertake significant improvements or renovations is only possible if you use cash already within your SMSF. Taking out a loan or borrowing other monies isn’t allowed.

Payment using borrowed money is only allowed when completing simple insignificant repairs or maintenance.

Property development in a SMSF

Property development in SMSF

Much like renovating, undertaking a property development using a SMSF is a very complex subject. It depends on whether borrowing is involved and how the property is structured.

In simple terms, you can’t borrow to undertake a property development in a SMSF. You’re also unable to make fundamental changes to a property if borrowing occurs. Fundamental changes include sub-dividing, or constructing a new building on vacant land.

However, if there’s no debt on the property and your SMSF has cash available, then development can take place. But when it does, the builders used must qualified and licenced, and considered to be at 'arms’ length' from your SMSF.

Why have property in a SMSF

Despite all the rules and regulations, buying a residential property in a SMSF can be a wise investment.

One huge advantage is the capital gains concessions available in superannuation. In property, the capital gain is the difference between the price a property is purchased for, and its sale price.

Property values in Australia have performed well in recent years and prices have increased dramatically. So, if you were to buy property in your SMSF and hold it for the long term, it’s entirely possible to pay no capital gains tax at all.


Sally and David are both 40 years old. They use their SMSF to buy a property today for $500,000. After 15 years, they valued the property, and it’s increased to $1,500,000.

If they decide to sell the property, as they’re both now 55 years old, the capital gain is taxed at 10%. Tax on this sale would be $100,000.

But suppose they choose to wait, and sell the property at age 60 when they’re both no longer working. In this case, instead of paying 10% tax on the capital gain, they pay no tax at all.

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