By Ron Cohen

4 December 2018

It has been suggested that acquiring property through a self-managed superannuation fund (SMSF) has become increasingly popular.

There are potentially numerous benefits for purchasing property via a SMSF including asset protection and concessional tax on rental income and future capital gains. These benefits and the suitability of using SMSF as an investment vehicle should be carefully considered. Advice from a qualified professional such as an accountant or financial advisor before investing is strongly encouraged.

In September 2007, the superannuation rules were relaxed to allow the use of borrowed funds for real property investment acquisitions. These amendments expanded the reach of these benefits so they could also be enjoyed by SMSFs lacking the money to purchase investment properties outright by having the ability to borrow money to finance a property purchase.

What do you need to use borrowed funds?

In order for a SMSF to borrow funds for property investment, two separate trust deeds need to be established:

  1. The traditional superannuation trust deed establishing the SMSF trustee as the borrower and the responsible person liable to pay all principle, interest, rates and outgoings applicable to the loan. The deed must have specific power to authorise the SMSF trustee to borrow money.
  2. A bare trust appointing a property trustee to hold the property on behalf of the SMSF until the loan is repaid in full, after which time the property trustee must transfer the property to the SMSF trustee.

What are the Requirements?

Most lenders will usually require the members of the SMSF to provide personal guarantees that the SMSF trustee will repay the loan. This means they would be personally liable for the entire indebtedness of the SMSF trustee regardless of the value of the property.

This guarantee can affect any assets personally owned by the guarantors outside of the SMSF if there is a risk of a loan default. Such encumbrances must therefore not be entered into lightly and are highly dependent on the individual circumstances.

Funds borrowed by a SMSF must be secured through a Limited Recourse Borrowing Arrangement (LRBA). This means that the financier’s security for the loan (e.g. a mortgage) can only extend to the property for which the funds have been borrowed and cannot encroach onto any other assets owned by the SMSF.

What are the Limits?

A SMSF may only acquire one property title, or a collection of identical assets with the same market value, per each LRBA. This single acquirable asset rule applies to all real property investments with the exception of multiple titles that can reasonably be identified as a single asset (e.g. an apartment with a separate carpark on title.)

Similarly, the loan monies cannot be used to improve an existing asset already owned by the SMSF, as the funds must only be used to acquire a single asset. While the money can be used to complete basic repairs and maintenance of an asset, trustees are prohibited from using the borrowed funds to alter the original function of the property or allow the subdivision of title.


For more information about property investment via a SMSF, contact Ron Cohen or a member of our Property Law Team at Tisher Liner FC Law.

Related Articles

View All
Commercial Contracts & Agreements / Business Law

When contracts end: The perils of miscommunication and misunderstanding

From a practical perspective, the most critical thing for any party to a contract to appreciate is the importance of...
Read More
Business Law / Mortgages, Loans & Finance / Mezzanine Finance

Private lending: the red flags

Today, it may appear amicable and you do not foresee anything going wrong after the money is advanced Surely, it’s...
Read More
Business Law / Commercial Contracts & Agreements / Corporate Advisory and M&A

Negotiating Indemnities: Some Practical Tips

An appropriate indemnity can provide a valuable mechanism for risk allocation between parties to commercial dealings...
Read More
Business Law / Property & Development / Developments

TLFC Law Triple Finalists in the Lawyers Weekly Australian Law Awards 2019

Celebrating its 19th year, the Australian Law Awards, in partnership with UNSW Law, is the pinnacle of award programs...
Read More
Business Law / Franchising & Licensing / Real Estate Agents

Thinking of buying or selling a Rent Roll?

However, rent rolls are regulated by the Estate Agent’s Act and it is important that the contract to buy or sell the...
Read More
Information Technology & Innovation / Developments / Business Law

Cyber Security and Protection from Cyber Fraud

Email communication is an inherent part of modern day business It is not uncommon to run an entire transaction online,...
Read More
Employment Law / Business Law / Litigation & Dispute Resolution

What employers need to know when letting someone go

A staff member may need to be let go because the business can no longer afford them, or perhaps they are just not...
Read More
Business Law / Leasing & Lease Disputes / Real Estate Agents

Retail Leases Update for Agents and Landlords

Pursuant to Section 15 of the Retail Leases Act 2003 (Vic), as soon as a landlord enters into negotiations with a...
Read More
Business Law / Commercial Contracts & Agreements / Franchising & Licensing

Franchisors Beware – the ACCC means business!

The action taken by the ACCC against the franchisor related to acting in breach of good faith and making false or...
Read More
Business Law / Personal Property Securities / Small to Medium Enterprises

Personal Property Securities Register (PPSR) Celebrates its 7th Birthday

Financiers who have registered security interests on the PPSR should be aware of this date, as seven-year registrations...
Read More
Business Law / Property & Development / International Investors

Self Managed Superannuation Funds and Property Investment Part 2: Stamp Duty when Transferring Property Assets

Whether the SMSF has purchased this property outright or though the assistance of a Limited Recourse Borrowing...
Read More