Structuring SMSFs to Buy Property

A Self-Managed Super Fund (SMSF) can acquire residential or commercial investment property, but trustees must follow strict superannuation rules.

Property held in an SMSF must be acquired and managed solely to provide retirement benefits and cannot be used for personal purposes by members or related parties, except where specific exceptions apply (for example, business real property leased on an arm’s-length basis).

Structuring SMSF

Before any acquisition, the SMSF must be properly established and have a written investment strategy that contemplates property investment where appropriate. Because an SMSF itself cannot borrow in the usual way, trustees use a Limited Recourse Borrowing Arrangement (LRBA).

In practice an LRBA is implemented with a separate holding vehicle, often called a bare trust or custody trust, which holds legal title to the property while the SMSF is the beneficial owner. The holding trust’s role is limited: it holds title until the borrowing is repaid and the legal title is transferred to the SMSF.

A bare trust or custody trust, which holds legal title to the property while the SMSF is the beneficial owner.

What the SMSF pays for and receives

All property-related income and expenses must flow through the SMSF. Rent received from the property is paid into the SMSF and property operating costs, including loan repayments, must be paid from SMSF funds. Repairs and maintenance that restore the property to its original condition are generally deductible to the SMSF, while capital improvements that enhance the property’s value are treated differently for tax and compliance purposes — trustees should refer to ATO guidance on repairs versus improvements.

Single-asset nature of most LRBAs

An LRBA is generally structured to acquire a single identifiable asset or a collection of assets that are treated as one asset under the arrangement. Because of the way LRBAs are regulated, trustees and their advisers usually treat each LRBA as linked to the specific property being purchased. Trustees who wish to acquire multiple properties typically need separate arrangements or a carefully considered strategy that maintains compliance.

Related-party and use restrictions

Residential property must not be acquired from a related party of the SMSF, and it must not be used by members, relatives, or other related parties for private enjoyment. Commercial property can be acquired from a related party only in certain circumstances and, if leased to a related party, must be leased on commercial terms. These rules are designed to protect the fund’s retirement purpose and avoid giving current-day benefits to members.

Borrowing, guarantees and lender practice

An LRBA limits the lender’s recourse to the asset held in the holding trust. In practice however, many lenders require trustees (or company directors where a corporate trustee is used) to provide personal guarantees or other security as a condition of the loan.

A personal guarantee is a separate commercial contract: if the SMSF defaults and the property sale does not satisfy the debt, the lender may seek recovery from guarantors. That potential personal exposure is an important practical risk that trustees must consider before borrowing.

Lenders also apply their own credit policies, including loan-to-value expectations and serviceability assessments. These policies vary between lenders and over time, so trustees should not rely on any fixed percentages; instead, engage with brokers or lenders early to understand current lending criteria.

Trustee structures and practical benefits

A corporate trustee creates a separate company to act as the SMSF trustee, with members as directors. This structure commonly simplifies administrative processes when members join or leave because the corporate trustee remains the same legal entity.

An individual trustee structure names each member as a trustee. Membership changes may require deed updates and changes to property title records, which can be administratively heavier. Lenders often prefer corporate trustee structures for their administrative clarity, though both structures are legally acceptable.

Name and title registration considerations

How the property is registered depends on state and territory land registry requirements and on the holding trust/custodian arrangement. In many cases the legal title is held in the custody trust or custodian name while the SMSF is the beneficial owner. Trustees should confirm the exact naming and registration requirements with their solicitor, the selected lender, and the relevant land registry prior to settlement.

Practical alternatives and funding pathways

In addition to bank finance, trustees can use SMSF funds, related-party lending (subject to in-house asset rules), or other commercial arrangements, and each option carries regulatory and tax implications. Complex on-lending arrangements (for example, where a member borrows personally and on-lends to the SMSF) can raise compliance and tax issues and should be implemented only with specialist advice.

Summary

Structuring SMSFs to buy properties inside an SMSF can deliver diversification and potential capital growth for retirement savings. It also introduces complexity: legal structures, ongoing compliance, borrowing obligations, liquidity risk, and practical lender conditions such as guarantees. Trustees should document decisions carefully, keep records, and obtain independent legal, tax and financial advice when considering SMSF property transactions.

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(GENERAL INFORMATION ONLY)

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