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Can Self-Managed Super Funds Buy Property?

Can Self-Managed Super Funds Buy Property?

By Prime Advisory, 16 February 2024

It’s a popular question: can self-managed super funds buy property? While the short answer is yes, there’s much more to the story…

Self-managed super funds (SMSFs) are on the rise in Australia, albeit gradually. 

Why the attraction?

Well, there are positives aplenty to setting up an SMSF—and the ability to invest in a broad range of assets is one of them.

Among those assets is property, and with it comes potential to execute exciting strategies to help fatten your super fund. 

Yet when it comes to super and retirement planning, rarely is anything straightforward.

Yes, SMSFs can invest in property, but it’s not as simple as that. 

In this article, we take a deep dive into the world of property ownership via an SMSF, tackling various commonly asked questions and hot topics, so you can determine if this retirement strategy is for you. 

Understanding Self-Managed Super Funds

Before we get to the topic at hand, it’s worth outlining the basics of SMSFs. 

Unlike traditional super funds, SMSFs empower individuals to make investment decisions tailored to their unique financial goals. 

Members of these funds act as trustees, providing them with autonomy over investment choices, including property acquisition.

Need to get up to speed on the ins and outs of self-managed super funds?

We’ve created the complete guide to SMSFs to help you on your way. 

What Types of Property Can an SMSF Invest In?

We’ve established that an SMSF can invest in property. 

In fact, an SMSF is the only category of super fund that allows its members to purchase real estate. 

This includes both residential and commercial property. But in the case of residential, the asset must be an investment property—more on that below.

For residential real estate, the usual suspects are included: houses, apartments, townhouses, units, etc. 

In the case of commercial property, it encompasses such structures as office buildings, retail spaces, industrial warehouses, and hospitality establishments. 

Why Invest in Property via an SMSF

PrimeAdvisory Director and Senior Advisor, Ben Norval, explains the appeal of investing in property via an SMSF.

“We know one thing that commonly draws people to an SMSF is the ability to invest in property,” he said.

“That opens up a whole world of opportunities—from tax benefits to leveraging property appreciation.

“Even better, you can use borrowed money to make the purchase, which you can’t do via a regular super fund. For the right person, this means access to a broader selection of property because their budget is less restrictive—and this variety can be hugely beneficial.” 

Alternatively, Norval said there was another clear reason why people headed down this path.

“For those who are nervous about stock markets and like tangible properties that they can touch and feel, SMSFs definitely tick the box,” he said.

Another factor that draws people to an SMSF is that you can have up to six members in your fund.

The ‘husband and wife’ scenario is typical, but occasionally this duo will pool its resources with its kids to create a single fund, so they can invest as a unit with all their money. 

This method can create a substantial figure to buy a property directly. 

SMSFs and Property—Conditions and Regulations

While SMSFs have the ability to invest in property, certain conditions and regulations govern these transactions—chiefly to ensure compliance with the law and to protect the interests of fund members.

Here is a rundown of key conditions and regulations that you need to be aware of:

Sole Purpose Test: This is a compliance measure administered by the Australian Taxation Office (ATO) that declares that the investments made by SMSFs must align with the sole purpose of providing retirement benefits to its members. All property acquisitions must serve this primary objective.

Arm’s length transactions: Property transactions within SMSFs must be conducted at arm’s length, meaning they have to be carried out as if the parties involved were unrelated and acting independently.

Maintenance and repairs: Any maintenance or repairs on the property must be paid for using the fund’s assets and cannot be funded by the members personally.

Restrictions on use: There are strict limitations on how the property can be used. For instance, residential properties owned by SMSFs cannot be leased to fund members or their relatives.

Residential v Commercial Property—Key Differences 

‘Restrictions on use’ is worth expanding on, as there are significant differences to the way that residential property and commercial property are treated within an SMSF—as we’ve touched on.

PrimeAdvisory founder, Christian Borkowski, explains in greater detail:

“Generally, residential property is pretty heavily regulated in self-managed super fund land,” he said.

“You can’t buy a residential property and occupy it in any way, shape, or form. You can’t rent it to any family members. It’s completely at arm’s length.

“People think they can buy a holiday home up at the Gold Coast and sneak in there for a weekend or two a year. Legally, they can’t.”

However, it’s a different story with commercial property, and that’s where a huge opening arises for relevant individuals.

“With commercial property, a golden opportunity presents itself,” Borkowski said.

“That creates a significant benefit for a business owner who wants to operate from their own premises—the premises can be owned inside the self-managed fund.

“This can be a key driver for establishing a fund in the first place.” 

Investing in a Commercial Property—Case Study

As we’ve established, the suitability of an SMSF is not a one-size-fits-all scenario. 

But here is an example of how such a fund could benefit an individual who is considering investing in an SMSF—with particular emphasis on business ownership.

This scenario is based on a PrimeAdvisory client…

Bob Baker bought a premises and moved his business—Bob’s Bakery—into that premises. 

During the last decade, Bob’s Bakery has become a well-oiled, successful business. While its rent bill is substantial (of course, the business pays rent rather than Bob himself) that cost is directed into Bob’s SMSF, rather than to someone else. 

Therefore, the cash flow within Bob’s super fund is excellent because it is collecting regular rent on top of the super guarantee (SG) contributions paid by his employer—Bob’s Bakery.

All this has put Bob in a strong financial position, with constant money flowing into his super fund—and that’s without mentioning the likely capital appreciation of the property. 

The news gets better… 

If Bob waits until he reaches 60 before selling the property, the sale will be completely tax free. And by this stage, Bob can convert his super to a pension. 

This example demonstrates that holding an SMSF can be a very efficient and clever way to ensure a business cost becomes an income. In fact, it’s a no-brainer in the right situation.

And it’s just one example of how an SMSF can benefit Australians.

Note: This example can work both ways. If you have enough money in your fund, you can purchase the premises outright; otherwise, you can get a loan and use the rent to pay it off.

Can SMSF Invest in Overseas Property?

This is a common enquiry. In short, the answer is yes—SMSFs can invest in overseas property.

As with property invested on these shores, similar rules and regulations apply. But additional complexities may arise due to foreign jurisdictions and currency fluctuations. 

We strongly urge you to do thorough research and seek professional advice if you’re considering this strategy.

Can SMSFs Borrow Money?

This is another popular question—and we’ve already given it some attention.

To expand on that information, the answer lies in the Limited Recourse Borrowing Arrangement (LRBA), a mechanism that enables SMSFs to borrow funds for property acquisitions under certain conditions. 

LRBA allows SMSFs to leverage borrowed funds to purchase property while limiting the lender’s recourse to the acquired asset in the event of default. 

It’s crucial to navigate LRBA regulations meticulously, as any breaches can result in severe penalties and jeopardise the fund’s compliance status.

Can Self-Managed Super Funds Buy Property?—Summary

The world of property investment within SMSFs presents a golden opportunity for savvy investors who are keen to diversify their retirement portfolios. 

Whether it’s residential or commercial property; buying direct or borrowing money, SMSFs offer the flexibility and control to tailor investments to individual preferences and financial objectives. 

But being aware of the various and oft-intricate regulations governing SMSFs—and ensuring compliance—is absolutely essential for avoiding penalties, and giving the fund the best chance of success.

The importance of seeking professional guidance cannot be stressed enough.

Put Your SMSF in Safe Hands

At PrimeAdvisory, we have loads of experience with SMSFs. 

With relationship-building at our heart, we devise and execute tailored strategies for our clients that get results.

And we provide critical peace of mind around compliance.

Keen to see how an SMSF could support your retirement planning?

Get in touch with us or call us on +61 02 9415 1511.

Let’s see what’s possible.


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      The information contained on this website has been provided as general advice only. The contents have been prepared without taking into account your personal objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.