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Buying Property Through Your SMSF: What You Need to Know

Merit Financial Services · February 2026 · 7 min read

Self-Managed Super Funds hold over $900 billion in assets across Australia, and property remains one of the most popular asset classes for SMSF trustees. The ability to borrow within super to acquire real property — via a Limited Recourse Borrowing Arrangement (LRBA) — offers a unique combination of leverage and tax efficiency. But it comes with strict compliance obligations that every trustee must understand.

LRBA Basics: How SMSFs Borrow to Buy Property

Under section 67A of the Superannuation Industry (Supervision) Act 1993 (SIS Act), an SMSF can borrow money to acquire a single acquirable asset, provided the arrangement meets specific structural requirements:

• The asset must be held on trust by a separate bare trust (also called a holding trust or custodian trust) until the loan is fully repaid.
• The lender's recourse is limited to the asset being acquired — they cannot claim other SMSF assets if the borrower defaults.
• The asset must be a single acquirable asset (one property, not a portfolio).
• Once acquired, the asset cannot be replaced by a different asset under the same arrangement (though improvements that don't change its character are generally permitted).

Residential vs Commercial Property

Residential property held in an SMSF must be at arm's length. No member, or related party of a member, can live in or rent the property. This is a strict rule under section 65 of the SIS Act, and breaches can result in severe penalties.

Commercial property is far more flexible. If the property qualifies as business real property (broadly, land and buildings used wholly and exclusively in a business), it can be leased to a related party — including the member's own business. This makes SMSF ownership of business premises one of the most powerful strategies available to small business owners: you're effectively paying rent to your own super fund.

The 70% LVR Structure

Most SMSF lenders will lend up to 70% of the property value for residential property and 65–70% for commercial property. This means the SMSF needs at least 30% of the purchase price plus costs (stamp duty, legal fees, establishment costs) in cash before proceeding.

For example, to acquire a $600,000 property, the SMSF would typically need around $210,000–$230,000 in available cash after allowing for all acquisition costs and a buffer. Interest rates on SMSF loans are typically 0.5–1.0% higher than standard investment loans.

Tax Efficiency: The Super Advantage

Property held within super benefits from concessional tax rates:

• Accumulation phase: Rental income is taxed at just 15%, and capital gains held for more than 12 months receive a one-third discount, resulting in an effective CGT rate of 10%.
• Pension phase: Once the SMSF is paying a pension (typically in retirement), both rental income and capital gains can be completely tax-free — 0%.

Compare this to an individual on the top marginal tax rate paying 47% on rental income and up to 23.5% on discounted capital gains. The difference is significant over a long holding period.

The Sole Purpose Test

Section 62 of the SIS Act requires that the fund be maintained for the sole purpose of providing retirement benefits to members (or their dependants upon death). Every investment decision, including property acquisitions, must satisfy this test. Trustees who acquire property for lifestyle or personal benefit — holiday homes, renovation projects, or properties earmarked for a child — risk serious compliance action from the ATO.

Business Real Property: Using Your Own Premises

For business owners, holding business premises in an SMSF is exceptionally attractive:

• The business pays market-rate rent to the SMSF, which is tax-deductible to the business.
• The SMSF receives the rent at a concessional 15% tax rate (or 0% in pension phase).
• The property appreciates inside the tax-effective super environment.
• On eventual sale, CGT is concessionally taxed or tax-free.

The rent must be at market value — not above or below — and supported by an independent valuation. A formal lease agreement should be in place.

Risks and Considerations

• Illiquidity: Property cannot be sold quickly. If the fund needs to pay benefits or meet a pension obligation, an illiquid property creates challenges.
• Concentration risk: A single property may represent a large proportion of the fund's assets, breaching the principle of diversification.
• Compliance costs: LRBA structures require separate bare trusts, additional legal documentation, annual audits, and ongoing compliance monitoring. These costs erode returns on smaller properties.
• Cash flow management: The SMSF must have sufficient cash flow to meet loan repayments, insurance premiums, property maintenance, and operating expenses — even during vacancy periods.
• Contribution caps: The SMSF can only receive contributions within annual caps, limiting the ability to inject additional funds if the property requires unexpected capital expenditure.