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
Business Law / Real Estate Agents

Underquoting Agent cops $720,000 fine

What was the case about The case involved 20 breaches of the Australian Consumer Law for underquoting The Agency had...
Read More
Business Law / Intellectual Property / IT & Technology

Protecting your brand: the importance of a trade mark

You may think your business name or logo is super catchy… witty… and perfectly encompasses the goods/services your...
Read More
Charities & Not-for-Profit / Business Law / Charities & Not-For-Profits

“I’m Just a Volunteer” – Liability of Directors or Committees of Not-for-Profits

Often though, the volunteer nature of these organisations may contribute to a failure by the organisation, its’...
Read More
Business Law / Commercial Contracts & Agreements / Franchising & Licensing

Uncertainty: Does your franchise agreement have an enforceable option or an agreement to agree?

Kiraig concerned a master franchisee Its rights to renew for a further term were typical in the franchising space They...
Read More
Business Law / Construction / Employment Law

September 2018 Newsletter

September 2018 Newsletter See the full newsletter here Welcome TLFC Law are pleased to welcome Min Seetoh to the...
Read More
Business Law / Corporate Advisory and M&A / Insolvency

Changes to Director Liabilities: Understanding Your Exposure

In essence, the legislation broadens director liabilities to now include GST, luxury car taxes and wine equalisation...
Read More
Business Law / Property & Development / Developments

Tisher Liner FC Law finalists in the Australian Law Awards 2018

The 18th annual Australian Law Awards, in partnership with UNSW Law, recognises the outstanding contribution of...
Read More
Business Law / Employment Law / Real Estate Agents

Are you complying with the Real Estate Industry Award? Don’t get caught out!

Changes to the Real Estate Industry Award 2010 Important changes to the Award include: Classification of employees and...
Read More
Australia-Israel Legal Advice / Charities & Not-for-Profit / Technology and Start Ups

TLFC – Award Finalist for Law Firm of the Year (Medium Category)

Tisher Liner FC are proud to be nominated as an award finalist in the 14th annual Victorian Legal Awards Medium Law...
Read More
Business Law / Commercial Contracts & Agreements / Small to Medium Enterprises

Insolvent Parties – Be Careful of Terminating Contracts

From 1 July 2018 (or earlier if the date is moved forward), the Treasury Laws Amendment (2017 Enterprise Incentives No...
Read More
Charities & Not-for-Profit / Business Law / Charities & Not-For-Profits

Tax Effective Giving – Charitable Distributions Through Discretionary and Charitable Trusts

With a discretionary trust, the trustee determines which of the beneficiaries will receive trust income and the timing...
Read More