SMSFs and property
Mixing property and your self-managed
You may want to set up an SMSF primarily to invest in
residential property. Here we explain when you can use your SMSF to
invest in property and what you need to consider before you do.
Self-managed super fund property
You can only buy property through your SMSF if you comply with
- Must meet the 'sole purpose test' of solely providing
retirement benefits to fund members
- Must not be acquired from a related party of a member
- Must not be lived in by a fund member or any fund members'
- Must not be rented by a fund member or any fund members'
However, your SMSF could potentially purchase your business
premises, allowing you to pay rent directly to your SMSF at the
See the Australian Taxation Office's webpage on self‑managed super funds
for more information.
Case study: John and Barbara consider an SMSF
Experienced property investors John and Barbara are
in their early 50s and want to set up an SMSF to use their super to
purchase another investment property. They have a property
portfolio worth $1 million (with investment loans of $800,000), a
combined $200,000 in super and no other investments.
After discussing their options with a financial adviser, Barbara
and John decide that an SMSF is not right for them. They realise
that a property investment through an SMSF would further increase
their debt and reduce the diversification
of their assets. Barbara is also concerned about the cost, time and
responsibility required to run an SMSF, especially as they get
older. Instead they decide to concentrate on paying off their debt
and making extra contributions to their super.
What it will cost you
SMSF property sales may have many fees and charges. These fees
can add up and will reduce your super balance.
You should find out all the costs before signing up
- Upfront fees
- Legal fees
- Advice fees
- Stamp duty
- Ongoing property management fees
- Bank fees
Be wary of fees charged by groups of advisers who recommended
each other's services as it is important to get independent advice.
Anyone who gives advice on an SMSF must have an Australian
financial services (AFS) licence. ASIC Connect's Professional
Registers will tell you if the company or person holds an AFS
See investing in property for more information.
Borrowing or gearing your super into property must be done under
very strict borrowing conditions called a 'limited recourse
A limited recourse borrowing arrangement can only be used to
purchase a single asset, for example a residential or commercial
property. Before committing to a geared property investment you
should assess whether the investment is consistent with the
investment strategy and risk profile of the fund.
Geared SMSF property risks include:
- Higher costs - SMSF property loans tend to be
more costly than other property loans which must be factored into
your investment decision.
- Cash flow - Loan repayments must be made from
your SMSF which means your fund must always have sufficient
liquidity or cash flow to meet the loan repayments.
- Hard to cancel - If your SMSF property loan
documentation and contract is not set up correctly unwinding the
arrangement may not be allowed and you may be required to sell the
property, potentially causing substantial losses to the SMSF.
- Possible tax losses - Any tax losses from the
property cannot be offset against your taxable income outside the
- No alterations to the property - Until the
SMSF property loan is paid off alterations to a property cannot be
made if they change the character of the property.
See borrowing to invest for more
information on the risks of gearing.
Property developers must have an Australian Financial Services
(AFS) licence to provide financial planning advice. This includes
advice on setting up an SMSF.
Property developers may have a pre-existing business
relationship with the professionals they recommended. They may
receive a referral fee or other benefits that could amount to
thousands of dollars.
Don't be pressured into making property purchase decisions for
an SMSF. Watch out for sales tactics like competitions, free
flights to sales meetings or being taken out for free meals. Make
sure you get financial advice from someone who has an AFS licence.
See questions to ask a financial
adviser for talking points you can use to check for sales
Think twice about investing in property
markets you are not familiar with, do your own research
Last updated: 03 Dec 2018