buy SMSF property without breaking the rules
Investing in SMSF property has become increasingly popular in recent years, especially now that self-managed super funds (SMSFs) can be utilised to borrow money to purchase assets directly. However, this isn’t a decision to take lightly, as using SMSF to buy property comes with risks, responsibilities, and regulations you need to comply with.
Before you commit, learn how to legally borrow through your super with our guide. If you’re keen on buying property with SMSF, DKM Accounting offers trusted advice from securing loan arrangements to ongoing compliance and tax obligations.
Frequently Asked Questions on
SMSF Property
How to ultimately live in your SMSF property?
Living in a property owned by your SMSF is not allowed while the property is held within the fund. However, it may be possible later under very specific conditions.
For example, once you have reached the preservation age (between 55 to 60 years old) and you can legally access your fund, you can remove the property from your SMSF and arrange for the title of the property to be transferred under your name. To do this, you must purchase the SMSF property at market value or receive the property as an in-specie lump sum payout. This means the property is transferred to you as part of your super benefits.
Can I use my SMSF property as an Airbnb rental?
Yes, you can use the SMSF property as an Airbnb rental if it is owned by the SMSF and held for investment purposes only. This means meeting ATO’s sole purpose test, where the property is solely to provide you with retirement benefits and not for personal use. You should also ensure the property is rented out to unrelated parties at market rates, with bookings, pricing, and terms consistent with a genuine business arrangement.
The ATO takes SMSF misuses seriously, so trustees need to be compliant at all times. This includes ensuring all income and expenses are accounted for and flow through the SMSF’s bank account.
How much can an SMSF borrow to buy property?
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.
staying compliant after buying property with smsf
Whether you choose a residential or commercial property, navigating the rules around SMSF property requires careful planning and expert advice. The ATO requires regular reviews and market valuations, so getting help from SMSF accountants and auditors is crucial for maintaining accurate records and documentation. In addition, your fund will still need to meet its obligations, like pension payments and compliance costs, so professional advice is needed to help you manage your fund. At DKM Accounting, we help trustees with:
types of SMSF property investment
SMSFs give members the ability to take control of their retirement savings, including investing directly in property. With your super, you can invest in both residential and commercial property, so long as your purchase meets the strict rules set by the Australian Taxation Office (ATO), and with the sole purpose of providing you with retirement benefits.
using SMSF to purchase residential property
Residential properties refer to homes, apartments, townhouses, or units meant for people to live in. When you use your super to buy this type of property, you can enjoy various benefits, including lower taxes, potential capital gains, and rental income from tenants. If you’re a first-time investor, buying residential property with SMSF is easier to manage and understand and offers stable rental demand, especially in high-demand areas.
As a trustee, however, there are strict rules to comply with. This includes the following:
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You, another trustee, or other individuals related to the trustees cannot live in the property
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You, another trustee, or other individuals related to the trustees cannot rent the property
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The property must be purchased at market value and be held strictly for investment purposes
using SMSF to purchase commercial property
Commercial properties typically used for SMSF investments include office spaces, warehouses, retail shops, and industrial facilities. Choosing this type of SMSF property may offer better benefits, like higher rental yields and more stable income streams. Unlike residential property, an SMSF commercial property can be leased to your own business, making it an attractive option for investors or businesses that already own a commercial property or small businesses who want to own the premises from which they operate.
Here’s what trustees should know about an SMSF commercial property:
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A commercial property can be leased to a related party (e.g. your own business) as long as it’s at market rate and under a formal lease agreement
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The property is solely and exclusively used for business purposes
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The property must still meet the sole purpose test, which requires that the investment be made solely to provide retirement benefits to fund members
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.
property evaluation
We evaluate whether your chosen residential or commercial SMSF property is suitable for your needs.
continued compliance
We help oversee management of your super, from structuring SMSF loans correctly to meeting ATO compliance requirements and preparing for audits and maintaining accurate records.
investment strategy
Property can be a powerful part of your investment strategy and we can help you prepare, review and update your fund, ensuring compliance with super laws.
Borrowing for SMSF Property
Buying property with SMSF is achieved through SMSF loans, also known as a limited recourse borrowing arrangement (LRBA). If your super doesn’t have enough capital to buy your chosen property outright, you can take out a loan from a third-party lender.
To limit the lender’s access to other assets under the SMSF, a separate property trust and trustee is established. While the property sits outside the SMSF’s structure, all income and expenses related to it still flow through the super fund’s bank account. The super fund is responsible for making all loan repayments. If it defaults, the lender’s recourse is limited to the property and they cannot touch any other asset within the SMSF.
While borrowing money for an SMSF property investment is possible, SMSF loans typically have stricter criteria than a normal property loan you might take out as an individual. It also comes with higher costs, like a higher deposit (from 20-30%), which must be paid from the fund, so all these must be taken into account to determine whether the investment is worthwhile.
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