Investing in Property Through Your SMSF: What You Need to Know

Can Your SMSF Buy Property?

Yes — a self-managed super fund (SMSF) can purchase residential or commercial property, including through a Limited Recourse Borrowing Arrangement (LRBA), which allows the fund to borrow to buy an asset. However, the rules are strict and the consequences of getting it wrong can be severe.

The Key Rules

The Sole Purpose Test

The property must be purchased for the sole purpose of providing retirement benefits to fund members. You cannot live in it, rent it to a related party (in most cases), or use it for personal benefit before retirement.

The Arm’s Length Rule

All transactions must be conducted at arm’s length — meaning at market value. You can’t buy a property from yourself or a related party at a discounted price, and you can’t charge below-market rent.

Commercial Property Exception

One notable exception: your SMSF can purchase a commercial property and lease it back to your own business — at market rent. This is a popular strategy for business owners who want to own their premises inside their super fund.

The Benefits

• Rental income is taxed at just 15% (or 0% in pension phase)
• Capital gains are taxed at 10% if the asset is held for more than 12 months (0% in pension phase)
• Leverage allows you to purchase a larger asset than your fund balance alone would allow
• Business owners can effectively pay rent to themselves (via their SMSF)

The Risks

SMSF borrowing is more complex and expensive than standard investment property finance. Loan-to-value ratios are typically lower (60–70%), interest rates are higher, and the compliance requirements are significant. You’ll need a specialist SMSF accountant, a financial adviser, and a broker who understands the space.

Is It Right for You?

SMSF property investment isn’t for everyone — but for the right person, it can be a highly tax-effective way to build wealth for retirement. Claire works with a trusted network of SMSF specialists and can help you understand whether this strategy suits your situation. Get in touch to start the conversation.