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 Law / Commercial Contracts & Agreements / Litigation & Dispute Resolution

Recording | TLFC Law Lunchtime Briefing | Commercial Matrimony – Marry/Battle/Kill

The slides are also available Please click here to view the PowerPoint Slides   Facilitated by Ron Cohen...
Read More
Commercial Law / Real Estate Agents / Owners Corporations & Strata

Changes for Real Estate Agents and Owners Corporation Managers

What are the applicable jurisdictions Current jurisdictions included are Victoria, New South Wales, South Australia,...
Read More
Commercial Law / Commercial Contracts & Agreements / Start-ups & Emerging Enterprises

Frustration, Force Majeure & Risk: Lessons for Business in Uncertain Times

Why is a force majeure clause so important A “force majeure” clause is a provision addressing the parties’ rights...
Read More
Commercial Contracts & Agreements / Commercial Law / Leasing & Lease Disputes

The 2022 Commercial Tenancy Relief Scheme Regulations are now in effect

The 2022 Regulations were foreshadowed in a press release issued by the Victorian Government on 15 January 2022 Click...
Read More
Commercial Law / Commercial Contracts & Agreements

Commercial Tenancy Relief Scheme Regulations 2021

In the technology space, this time of year is often linked with the anticipated release of the new models of Apple...
Read More
Commercial Law

Directors beware – Corporations Act changes tighten the rules for exiting Directors.

Recent changes to the Corporations Act can prevent a director from exiting and alter the effective date of resignations...
Read More
Leasing & Lease Disputes / Real Estate Agents / Commercial Law

COVID-19 – Commercial Tenancy Relief Scheme to be extended (again)

The CTRS was initially expected to end on 29 September 2020 under the COVID-19 Omnibus (Emergency Measures)(Commercial...
Read More
Commercial Law

Verification of online customers: Is your business complying with the new AML/KYC laws?

The changes apply to any business receiving funds from customers that are not already known to them This includes...
Read More
Retail Clients & Chains / Commercial Law

A win for the Tigers on the field and in the Court of Appeal

On 16 October 2020 the Court of Appeal confirmed that a ‘retail premises lease’ will remain subject to the Retail...
Read More
Commercial Law / Leasing & Lease Disputes

COVID-19 Lease Variations- How to document it properly

We have written several blogs about commercial leases and licences and the impact COVID-19 has had on them and what the...
Read More
Commercial Law / Commercial Contracts & Agreements / Corporate Advisory and M&A

Announcing our Promotions

Rob joined us in 2017 and immediately impressed us with his litigation skills and incredible work ethic It’s no...
Read More
Commercial Contracts & Agreements / Commercial 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