Investing In Property With An SMSF: Everything You Need To Know

In recent years, investing in property through a self-managed super fund (SMSF) has increased in popularity, as it is now possible for SMSFs to borrow money to pay for a direct property purchase. In this blog, we’ll be looking at everything you need to know about SMSFs.

SMSF property investment

What is a self-managed super fund (SMSF)?

Unlike retail and industry super funds, a self-managed super fund (SMSF) is a private super fund that you are responsible for managing yourself. When you manage an SMSF, you choose your insurance and investments, which can offer you greater control over your finances, along with greater risk, which is why it’s important to ensure that you only set up your SMSF if you understand your responsibilities.

An SMSF can have up to six members, and as an SMSF member, you can either be a trustee or hire a corporate trustee, but the responsibility for the fund will be in your hands.

How to buy property with an SMSF

There are several rules you need to comply with to buy a property through your SMSF. The property must:

  • Not be obtained from a relative of a member
  • Not be resided in by a member of the fund or a member’s related parties
  • Not be rented by a member of the fund or any of their related parties
  • Pass the ‘sole purpose test’ of only providing fund members with retirement benefits

If you choose to purchase a property through an SMSF, the fund must be used to pay 15% tax on the property’s rental income. For properties owned over a year, the fund will benefit from a third discount on any capital gain it makes after selling, reducing your capital gains tax liability to 10%.

Is it worth it?

If investing your retirement savings in an investment property is appealing to you but you don’t have enough saved in your super to do this, SMSF Borrowing could be the perfect solution. As long as you meet the conditions listed above, you can use your SMSF to invest in property under a Limited Recourse Borrowing Arrangement (LRBA).

Using an SMSF can increase your property investment options significantly. You will also pay fewer Capital Gains Tax (10%), have the chance to speed up the growth of your retirement savings and be able to maximise your capital growth, as you can use your rental income to fund further property investment.

How much money do I need in my SMSF to buy a property?

Legally, there is no minimum balance required in your SMSF to purchase an investment property, but experts recommend having at least $200,000 available. The amount of money you require may not be fixed but having a sufficient deposit will cover the operating costs and initial fees required to run the property and the SMSF.

To purchase a residential property for your SMSF, it’s recommended for you to have at least 20-25% of the property value set aside as a deposit, as well as an extra 5% to cover the costs of finalising the purchase. To purchase a commercial property for your SMSF, a deposit of at least 30% is required, plus 5% to cover the cost of completion.

Can I live in a house owned by my SMSF?

While you can use your SMSF to purchase a residential property, you are not permitted to live in that property while you are still employed, but you can rent it out as an investment property. You are also not permitted to rent the property to any other member of the fund or a relative of any members of the fund.

This rule applies to properties purchased using funds from an SMSF, and properties registered in the name of the fund. This restriction is in place because the sole purpose of superannuation is to support you during retirement.

Can I live in my SMSF property when I retire?

If your SMSF still owns the property, you can not live in it when you retire. However, once you start receiving regular retirement income from your SMSF, you can sell your existing home and put the proceeds into your SMSF. You can then arrange for the title of the property to be switched to you for you to reside in, as you have purchased your retirement property from your superannuation fund.

Contact our experts

At Charter Partners, we know that self-managed super fund regulations can be complicated, which is why we offer strategic fund administration and specialist advice that Gympie, Bundaberg and Brisbane locals can rely on. To learn more, give our team a call on 1800 810 247 or use the contact form and start planning your worry-free retirement today.


Anthony McPhee

Anthony McPhee, Principal

B.Bus (Accy) QUT | FCPA, SSA (SMSF Specialist Advisor with the SMSF Association) & Registered Tax Agent

Anthony has over 25 years accountancy, taxation and superannuation (SMSF) experience. He eagerly welcomes a challenge and his passion is in small business accounting, superannuation, consulting and taxation advice. He provides real business benefits for each of his clients and is well regarded for his succinct and accurate accounting skills. Anthony is also a self-managed superannuation fund (SMSF) specialist with Australia’s leading SMSF body, The SMSF Association.

Learn more about Anthony.

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