SMSF Property Investment Structures Explained

Investing in property through a Self-Managed Super Fund (SMSF) requires a carefully structured approach that complies with superannuation law.

One of the most important decisions Trustees must make is whether to establish the SMSF under a corporate trustee or an individual trustee structure. Each has its own implications for property ownership, borrowing, and ongoing management.

Understanding SMSF Trustee Structures

When setting up an SMSF for property investment, Trustees can choose either a corporate trustee or individual trustee arrangement. In both cases, a separate trust, often called a bare trust or custody trust, is used to hold the legal title of the property while the SMSF is responsible for all income, expenses, and loan repayments. This structure ensures compliance with the limited recourse borrowing arrangement (LRBA) requirements set by the ATO.

Corporate Trustee Structure

A corporate trustee involves creating a company to act as the legal trustee of the SMSF. This option offers several administrative advantages. Members can join or leave the SMSF without affecting the fund’s ownership of assets, making it simpler to manage long-term investments like property. Many lenders also prefer dealing with SMSFs that have corporate trustees, as they are generally easier to administer for lending purposes.

Individual Trustee Structure

An individual trustee arrangement requires each SMSF member to act personally as a trustee. While this may involve lower initial setup costs, it can create complications if members join or leave the fund, as property titles must be updated in line with trustee changes. This can lead to additional legal and administrative costs and may also impact borrowing arrangements with lenders.

SMSF Property Investment Structures

SMSF Property Investment

SMSFs are not permitted to borrow directly. Instead, a limited recourse borrowing arrangement is used. The bare trust holds the property title until the loan is repaid, at which point ownership reverts fully to the SMSF. Rental income is paid into the SMSF, and the SMSF is responsible for all loan repayments and property-related costs.

Both trustee structures can facilitate property investment within an SMSF, but corporate trustees generally provide greater flexibility, smoother administration, and may assist with accessing loans for property purchases.

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(GENERAL INFORMATION ONLY)

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