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Buying Property with SMSF: Top 3 Considerations

Buying Residential Property

If you have, or you are considering setting up a Self-Managed Superfund (‘SMSF’) and you wish to find out if you can buy residential property with your SMSF, there are a few factors you must consider, including:

  • how do you intend to use the residential property, and
  • how do you plan to fund the purchase of the residential property?

If you plan to use a SMSF to buy residential property in Australia, it must comply with the Superannuation Industry (Supervision) Act 1993 (‘SIS Act’) and the rules and regulations imposed by the Australian Taxation Office (‘ATO’).

The primary purpose of a SMSF is to provide retirement benefits to its members. Buying property with SMSF therefore must take into consideration the following 3 things:

1. You must meet the ‘Sole Purpose Test’

If you plan to buy residential property through your SMSF, you must meet the “sole purpose test”. This means that your SMSF must be made solely for the purpose of providing retirement benefits to the members. It cannot be made for any other purpose, such as to buy a holiday home or to buy a primary residence in which you plan to live.

The property must also be bought on an arm’s length basis. This means that the property must be bought at market value to reflect its true value.

2. Borrowing restrictions apply to SMSF

There are also borrowing restrictions that apply when using a SMSF to invest in property. If the SMSF does not have enough funds to buy the property outright, it may be able to borrow money to do so. However, the borrowing must be obtained through a limited recourse borrowing arrangement (‘LRBA’). This means that the lender only has recourse to the property that was bought, and not to any other assets held in the SMSF. Borrowing money through a SMSF can be quite tricky and can take time.

Investing in residential property through a SMSF can be attractive because it allows you to use your retirement savings to buy an asset that can also generate income through rent and equity.

3. Costs associated to the property must be paid out of the fund

If you are looking to buy a residential property through a SMSF, you will also need to consider the costs of managing and maintaining the property and the fund, as those costs will need to be paid out of the fund. This can affect the retirement benefits of its members.

What should you do if a property is being purchased by your SMSF?

  1. See your accountant to ensure that the investment property you are intending to purchase is compliant with the SMSF rules.
  2. Do not purchase property owned by an SMSF related party.
  3. Before signing a contract, have it reviewed and get legal advice to ensure that the contract is appropriate for the SMSF regulations.
  4. If borrowing money, you should also visit your bank before signing the contract to confirm their specific requirements and whether they require any personal guarantees.
  5. Allow extra time for finance to be approved.  The documentation and approval process is much more complex than for a standard residential property purchase.

How can a property lawyer help me with buying property with SMSF?

In summary, it is possible to use a SMSF to invest in residential property in Australia, but it is important that you seek professional advice from a qualified property lawyer with experience in handling SMSF’s and that you obtain financial advice on whether establishing a SMSF is right for you before making any investment decisions. 

Important Disclaimer: The content of this article is general in nature and for reference purposes only. It does not constitute legal or financial advice and should not be relied upon as such.  Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.



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