Buying property within your self-managed super fund

Are you wanting to buy a property? Have you thought about using your self-managed super?

Buying property within your self-managed superannuation fund (SMSF) has grown in recent years due to legislative changes which allow SMSF’s to borrow money but there are various rules and other considerations before choosing this route.

SMSF Property Rules – Residential Property

1. Sole Purpose Test

The investment’s sole purpose is to provide retirement benefits to the fund’s members.

2. Acquiring from a Related Party

The property cannot be purchased from related parties of the fund.

3. Living in the Property

Fund members or related parties of the fund cannot live in a residential property.

4. Renting the Property

Fund members or related parties of the fund cannot rent the residential property. For example, buying a holiday home and living there during summer is strictly prohibited.

Commercial Properties

The rules are different for commercial properties.

For example, an SMSF can buy your business premises and lease it back to you at market rent.

Investing in commercial property with your SMSF may be an attractive option but be aware that there are further issues to be cautious of.

Borrowing to Buy Property

SMSFs can now borrow money to buy property and this is achieved through a limited-recourse borrowing arrangement (LRBA). The structure is complex as a separate property trust and trustee is established to hold the property on behalf of the SMSF. The lenders can only access the property held by the trust (limited recourse) if the fund fails to meet loan repayments. The borrowing criteria is also stricter with more costs involved.

Seek professional advice

Self-managed superannuation and properties can be beneficial in the right circumstances and if setup correctly at the outset. Accru has substantial experience with self-managed superannuation and can assist with strategies and compliance.

If you would like more clarification about investing in property in a self-managed superannuation fund, please contact one of our Super Specialists, complete your details below and we’ll be in touch or give us a call on 03 9835 8200.

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Winston Lee
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