Your SMSF can borrow to buy residential or commercial property — but only through a Limited Recourse Borrowing Arrangement. Here's exactly how it works.
- SMSFs can borrow to buy property via a Limited Recourse Borrowing Arrangement (LRBA).
- The property must pass the sole purpose test — it must be for the fund's retirement benefit, not personal use.
- SMSF property loans require larger deposits (typically 30-35%) and have stricter lending criteria.
- A specialist SMSF loan broker and SMSF accountant are both essential to get this right.
Self-Managed Super Funds have become one of Australia's most popular vehicles for property investment. With the right structure, your SMSF can borrow to purchase residential or commercial property, generating rental income within the super environment and benefiting from concessional tax treatment.
Can an SMSF Borrow to Buy Property?
Yes — but only through a Limited Recourse Borrowing Arrangement (LRBA). Under an LRBA, the SMSF borrows money to purchase a single asset, the property is held in a separate bare trust during the loan period, and the lender's recourse is limited to the property if the SMSF defaults. Once the loan is repaid, the property transfers into the SMSF.
The Sole Purpose Test
The most important rule: the property must satisfy the sole purpose test — acquired and held solely for retirement benefits. This means:
- You cannot live in an SMSF-owned residential property
- You cannot rent it to a fund member or related party (residential)
- Commercial property owned by the SMSF can be leased to a related party at market rent
This last point makes commercial property particularly attractive for business owners: your SMSF can buy your business premises and charge your business market rent, keeping rental income in the super environment.
SMSF Loan Requirements
SMSF property loans have stricter criteria:
- Deposit: most lenders require 30-35% (LVR of 65-70%)
- Trust deed: the fund's trust deed must explicitly permit borrowing
- Bare trust deed: a specific legal document is required to hold the property during the loan
- SMSF financials: some lenders require two years of SMSF accounts
ASIC's SMSF borrowing overview covers the regulatory framework.
Tax Treatment Inside an SMSF
Rental income in the accumulation phase is taxed at 15% (vs your marginal rate outside super). Capital gains on property held more than 12 months attract a 10% effective tax rate in accumulation. Once the fund enters pension phase, rental income and capital gains on assets supporting the pension can be tax-free.
What Types of Property Can an SMSF Buy?
Residential property: purchased at arm's length, cannot be occupied or rented by members or related parties. Commercial property: can be leased to related parties (including members' own businesses) at market rent.
Getting SMSF Property Finance Right
You'll need a specialist SMSF loan broker, an SMSF accountant/administrator, a solicitor for the bare trust deed, and an SMSF auditor. At Wiseman Financial Solutions, we specialise in SMSF loans and work alongside your accountant and solicitor to ensure the finance side is structured correctly.
Contact us to discuss your SMSF property investment plans.
Frequently Asked Questions
Can my SMSF buy a property I already own personally?
Generally no — related party purchases of residential property are prohibited. Commercial property can sometimes be transferred into an SMSF but involves strict conditions and stamp duty implications.
How many properties can my SMSF borrow to buy?
Each property typically requires a separate LRBA. Some lenders will facilitate multiple LRBAs within the same fund, subject to the fund's assets and serviceability.
