Are you thinking about investing in real estate through the self-managed Super Fund (SMSF)? It could be a wise decision, but it’s essential to know the procedure and possible risk’s prior to diving into it.

The process of buying an investment property with the help of your SMSF isn’t an easy procedure, but with proper guidance and understanding, it can be possible and profitable. This article will help you understand advantages and disadvantages of buying a property using your SMSF and the things you must be aware of in order to make a wise investment choice.

What is an SMSF?

An SMSF is a type of savings fund for retirement in Australia that is managed by its members and trustee’s instead of a financial institution. The members and trustees are in charge of making investment decisions and following the rules set by the Australian Taxation Office.

Let’s look at what you can do with SMSF.

Buy Residential Property with SMSF

It is sure possible to make use of your SMSF to purchase residential properties. However, there are certain rules and regulations that you have to adhere to. The property has to meet the “sole objective test”, that is, it has to be purchased with the sole goal of giving retirement benefits to participants of an SMSF. Furthermore, the property can’t be rented out to members of the SMSF or any other related third parties.

Buy Commercial Property with SMSF

It is also possible to use an SMSF to purchase commercial property. The rules for commercial property are similar to those that apply to residential properties. The property must satisfy the sole purpose test, and it is not allowed to any member of an SMSF or any other related parties. There is, however, more freedom with commercial properties because they can be let to a third party.

Get a Personal Loan Through SMSF?

Yes, you can obtain the loan you need to purchase the property you want through an SMSF. However, there are some restrictions regarding the kind of other loan that you can avail. SMSFs aren’t allowed to obtain loans for personal use. Therefore, any loan you take must be used solely for investment that will help during retirement.

Buying a Property Using an SMSF with an LRBA

SMSFs can buy a property through the Limited Recourse Borrowing Arrangement (LRBA). An LRBA is a loan arrangement which allows SMSFs to borrow funds to buy a single asset like a home. This loan will be secured by the property. In the event that the SMSF is in default on the loan, then the lending institution may only demand recourse to the asset but no other assets of the SMSF.

What are the tax consequences of SMSF property investment?

There are numerous tax implications to take into consideration when you invest in property via an SMSF. Firstly, any rental income in the form of property is taxable at a discount rate of 15%. Additionally, the capital gains resulting from the sale of the property are taxed according to the discount rate of 10% when the property is in possession for longer than 12 consecutive months. If you sell the house prior to the 12-month mark, the tax on capital gains is 15 per cent.

Factors You Should Take Into Account When Buying a Property through an SMSF

1. Cash flow: Before purchasing a property through an SMSF, it is important to ensure that the SMSF has sufficient cash to service the purchase, as well as the costs associated with purchasing the property (such as stamp duty and deposit)

2. Diversification: Investing in property can be a good way to diversify your SMSF’s investment portfolio. However, it is important to ensure that the SMSF’s investments are not overly concentrated in one asset class.

3. Investment strategy: It is important to have a clear investment strategy in place before purchasing a property through an SMSF. The investment strategy should take into account factors such as the SMSF’s risk tolerance, investment objectives, and cash flow requirements.

4. Professional advice: Investing in property through an SMSF can be complex, and it is important to seek professional advice from a qualified financial advisor or accountant before making any decisions.

Pros and Cons of Buying a Property through an SMSF


– Potential tax benefits through the SMSF structure

– Opportunity to invest in property as part of a retirement portfolio

– Ability to use rental income to pay off the property and potentially earn a profit


– Restrictions on using the property for personal use or benefit

– High upfront costs associated with setting up an SMSF and purchasing a property

– Limited flexibility in terms of selling or accessing funds tied up in the property.


Purchasing an investment property with SMSF could be a great investment option for people looking to accumulate wealth for retirement. But it is crucial to take a careful look at the advantages and risks and seek advice from a professional prior to making any decisions. If you are able to plan and execute positively, the purchase of property via SMSF could ensure long-term financial security as well as stability for both individuals as well as their families.