Self-Managed Super Fund (SMSF)

Investing In Property Through a Self-Managed Super Fund

A Guide to Buying Property Through an SMSF

Buying an investment property through a self-managed super fund (SMSF) has become increasingly popular in Australia. This has particularly been the case since it became possible for SMSFs to borrow money to finance a direct property purchase.

While property investment through an SMSF has certain advantages, it also has some strict rules that must be adhered to. Anyone considering property investment through an SMSF should make sure they’re familiar with the rules and potential tax implications.

SMSF Regulations for Investing in Residential Property

Property purchased through an SMSF cannot be lived in by any trustee of the SMSF or anyone related to the trustees. This regulation applies no matter how distant the relationship might be. In other words, you can’t buy a property through an SMSF and then live in it with your family.
An SMSF investment property also cannot be rented by any of the trustees or anyone related to the trustees. This means that you can’t buy a holiday rental property with an SMSF and then hire it out for personal use.

SMSF property investment rules also stipulate that you cannot put an existing residential investment property that you already own into an SMSF. This applies regardless of whether the SMSF is purchasing the property at market value or contributing to it within the cap limits.

The Tax Consequences of Buying Through an SMSF

If you buy a property through an SMSF, the fund will be required to pay a 15% tax on any rental income received from the property. On properties held for longer than 12 months, the fund will receive a discount on any capital gains it makes upon sale. This discount will bring any capital gains tax liability down to 10%.​

If the property is purchased via a loan, the interest payments are tax-deductible to the fund. If property expenses exceed the rental income, then this counts as a taxable loss that is carried forward each year and can be offset on future taxable income.

Once trustees start receiving a pension at retirement, any rental income or capital gains arising from the fund will be tax-free.

It’s also important to note that if you make a loss on your property this cannot be offset against your personal taxable income outside the fund.

What Are the Rules for Buying Property Through an SMSF?

In order to purchase a property through a self-managed super fund, you’ll need to make sure you’re complying with certain rules. The main rules are:

  • The property must be purchased with the sole purpose of supplying retirement benefits to members of the super fund. This is what’s known as the ‘sole purpose test’.
  • The property can’t be purchased from any of the trustee’s related parties.
  • The property cannot be lived in or rented by any of the SMSF members or any of their related parties. One exception to this rule is for commercial properties, which can be leased by a trustee or related party for business purposes. However, the property must be rented at the current market rate (no family discounts) and must comply with specific rules outlined by the Australian Tax Office (ATO).

For more information on the specific rules that apply to purchasing a property through an SMSF, visit the ATO website.

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