how SMSF loans work and what to watch out for
If you’re looking to invest in property through your super but don’t have the funds to buy outright, SMSF loans may offer a way forward. Whether used for residential or commercial property, or for shares and managed funds, SMSF borrowing must follow strict rules to remain compliant.
In this guide, we explain how SMSF loans work, what the ATO requires, and how to avoid costly mistakes. If you need help structuring or applying for an SMSF loan, DKM Accounting can support you throughout the process.
what you need to know about SMSF loans
what is a SMSF loan?
SMSF loans are investment loans allowing you to leverage the funds in your self-managed super fund to purchase an investment property. This means you can take control of your retirement and grow your investment portfolio sooner rather than later.
how do SMSF loans work?
SMSF loans enable trustees to borrow money through their SMSF to purchase an investment property they may not be able to afford outright. This is done under a Limited Recourse Borrowing Arrangement (LRBA), where a SMSF trustee takes out a loan from a third-party lender.
The property is held in a custodian trust until the loan is fully repaid, at which point the SMSF takes legal ownership. During the loan term, SMSF members retain a beneficial interest in the property, and any income it generates is reinvested into the fund to help repay the loan or increase the fund value.
how much can I borrow for SMSF loans?
Generally, you can borrow up to 80% for residential properties and up to 70% for commercial properties. However, the amount you can borrow will still depend on your financial situation. You may be required to maintain a minimum amount within your SMSF after the property purchase, and this may vary depending on your individual circumstances.
how do I apply for a SMSF loan?
Borrowing for an SMSF is a little more complicated than a standard home loan. An SMSF loan for property has strict requirements, and you’ll need to have an existing SMSF structure or be in the process of establishing an SMSF before you can apply for a loan. Our SMSF accountants at DKM Accounting can guide you throughout the entire process and ensure your SMSF loan is structured to suit your goals and investment strategy.
how to stay compliant with SMSF loan rules
SMsf setup
We ensure your SMSF is fully set up and help identify assets that align with your investment goals and fall within your borrowing capacity.
smsf loan requirements
We outline the requirements and provide advice and assistance in securing SMSF loan providers and SMSF loan rates permitted under superannuation law, ensuring a smooth and compliant setup.
transaction oversight
We manage every contribution, withdrawal, and investment to keep your SMSF within regulatory limits, correctly taxed, and ready for audit, across properties, shares, and crypto.
investment strategy
SMSF loans for property should have a documented investment strategy, and we can help you prepare, review and update your fund’s investment strategy, ensuring compliance with super laws.
Managing your SMSF property
Like any SMSF investment decision, SMSF loans must align with your fund’s investment strategy and serve the sole purpose of providing retirement benefits. Proper management of SMSF property is essential, and your loan must be correctly structured to avoid potential risks, including:
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Higher costs: An smsf loan for property investment will likely have higher interest charges and fees.
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Possible tax implications: Because the property is owned by the SMSF, not you personally, any losses from the property cannot be offset against your personal taxable income. While the SMSF can offset those losses against its own taxable income, it is generally taxed at a concessional rate of 15%. This rate is typically lower than an individual’s marginal tax rate, which means the usual tax advantages of negative gearing are not fully realised in an SMSF structure.
Running a SMSF is a major responsibility, and the Australian Tax Office (ATO) strongly recommends doing your due diligence and seeking out professionals who are “qualified, registered, licensed, and right for your circumstances.” These professionals, including SMSF accountants, auditors, financial advisers, tax agents, fund administrators, and legal practitioners, can walk you through the process of setting up and helping you manage your fund. By ensuring compliance, you avoid breaching super laws and facing severe fines.
how long does SMSf approval loan take?
Once your SMSF is set up and you have provided all the required documents, the selected lender will need some time to conduct a legal review of the trust deed and arrange a valuation of the property. This process can take anywhere between two to three weeks. Remember that SMSF loans are a little more complicated than a home loan, and securing pre-approval can take some time.
Can I apply for a SMSF loan for property if my SMSF is not set up yet?
Setting up a SMSF is a detailed and tedious process. Transferring your contributions from your retail fund into your SMSF can take time, especially if you have used multiple funds. Wait until your SMSF setup is completed before looking at properties.
Why do I need to consult with a SMSF accountant?
SMSF accountants take charge of your administrative and accounting needs to ensure your SMSF remains compliant with ATO regulations. While you can manage your funds independently, our expert team can provide peace of mind, advise you on how to grow your investment strategy, and help you maximise your tax benefits.
frequently asked questions about SMSF loans
Speak with an SMSF Accountant
Ready to set up your smsf and invest in property?
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locations
Find DKM Accounting near you. Our locations make expert financial support easily accessible, whether in person or online.
Bella Vista, NSW 2153
Location
408, 29 Lexington Drive
Bella Vista NSW 2153
Hours
Monday: 9:30 am - 6:30 pm
Tuesday: 9:30 am - 6:30 pm
Wednesday: 9:30 am - 6:30 pm
Thursday: 9:30 am - 6:30 pm
Friday: 9:30 am - 6:30 pm
Saturday: Closed
Sunday: Closed
Contact
Deakin, ACT 2600
Location
2/8 Phipps Cl,
Deakin ACT 2600
Hours
Monday: 9:00 am - 5:30 pm
Tuesday: 9:00 am - 5:30 pm
Wednesday: 9:00 am - 5:30 pm
Thursday: 9:00 am - 5:30 pm
Friday: 9:00 am - 5:30 pm
Saturday: Closed
Sunday: Closed