- Property makes up around 16% of the asset holdings of all self-managed superannuation funds (SMSFs) in Australia
- Property - both commercial and residential - can be a sound investment for SMSFs, depending on their investment strategies
- SMSFs can borrow funds to purchase property but stringent rules apply
Changes to SMSF borrowing rules
On 23 June 2026, the federal government announced it would no longer allow self-managed superannuation funds (SMSFs) to borrow money to fund investments in residential property.
The legislation received assent on 26 June 2026, triggering a 45-day period that SMSFs have to finalise contracts already in place. The working deadline is 10 August 2026.
Sale contracts and limited recourse borrowing arrangements finalised during this period will not be affected by the new rules.
After the 45 day period, SMSFs can no longer purchase residential property via a loan, but will still be permitted to buy a residential property outright, without finance.
SMSFs with existing limited recourse borrowing arrangements in place will be permitted to refinance loans under existing refinancing rules.
The new SMSF rules apply to residential property purchases only and will not affect SMSFs buying commercial or industrial properties.
There are around 663,000 SMSFs in Australia with more than 1.2 million members as at December 2025, according to the Australian Taxation Office (ATO).
The total estimated value of the assets held by SMSFs was more than $1 trillion. Here's the breakdown of the main assets held (as at December 2025):
- listed shares - 27%
- cash and term deposits - 16%
- unlisted trusts - 13%
- commercial property - 10.5%
- residential property - 5.5%
Following a change of SMSF borrowing rules almost 20 years ago, property has increasingly found a place in many SMSF portfolios.
However, the process of purchasing property through an SMSF is relatively complex, so read on to determine if it's a strategy that could work for your fund.
What is an SMSF?
First things first. A self-managed super fund, or SMSF, is a private superannuation fund that you manage yourself, rather than one that's managed by a registered superannuation provider such as AustralianSuper or Australian Retirement Trust.
A SMSF can have from two up to six members, all of whom must be a trustee. (Note: some state and territory laws restrict the number of trustees so this needs to be established for each jurisdiction.) This means each member of the fund is equally responsible for decisions made about the fund and the fund's compliance with relevant laws.
See also : A step-by-step guide to setting up an SMSF
Difference between regular superannuation and SMSF?
Superannuation is basically a savings account for your retirement - one which your employer must legally make deposits into and which you can't touch until you reach 'preservation age', which is between 55 and 60 depending on when you were born.
The purpose of an SMSF is to give you more control over your super, including how much you pay into it, and where and how much of it is invested.
In theory, it sounds like a no brainer but SMSFs are a significant responsibility to take on and require a considerable amount of time and effort to administer. Additionally, they come with a number of expenses through fees and charges, as well as the cost of hiring professionals, such as accountants and auditors, to assist you in the process.
See also :
Can you use an SMSF to buy residential property?
Yes, an SMSF can be used to buy a residential property but there are several restrictions associated with doing so.
Below are some of the key restrictions:
- A trustee, or anyone related to the trustee, cannot live in a residential property that you have purchased through the SMSF
- A trustee, or anyone related to the trustee, cannot rent the property purchased through the SMSF
- The SMSF cannot buy a property owned by a trustee or anyone related to the trustee
- The purchase must meet the ' sole purpose test ' of solely providing retirement benefits to fund members
What is the sole purpose test?
The sole purpose test is the golden rule of SMSF property investment . It ensures the SMSF is used for the sole purpose of providing benefits to members upon their retirement or their dependants in the case of the member's death before retirement.
The process of purchasing a property with SMSF funds is very different to purchasing one with an SMSF home loan. That's an entirely different and more complex kettle of fish which we'll get into soon.
Can you use an SMSF to buy commercial property?
Yes, commercial property is generally more popular with SMSF investors than residential property.
Buying commercial property through an SMSF is still bound by the same restrictions as buying residential property, such as the sole purpose test.
However, it's relatively common for small- and medium-sized enterprises (SMEs) to buy commercial property through an SMSF and lease it back to themselves by paying rent to the SMSF.
This is legal provided it is maintained on an 'arm's length basis'. This basically means that all investments should be managed on a strictly commercial basis, with the assets and their returns reflecting true market value.
Other requirements
As well as the sole purpose test, there are several other conditions that you need to follow if you're considering this:
- The terms of the lease must be commercially competitive and/or market value. You can't give your business mates' rates and lease the property for way less than it's worth on the market to yourself to save yourself money.
- You're required to get regular valuations on the property to ensure the rent you're paying is the appropriate market value.
- You must pay your rent on time, in full, every time. You can't pay a day or two late because you may have had a less than successful week. The conditions must be just like in any other rental agreement.
Failure to follow these conditions will result in your lease not being compliant. SMSFs are monitored by the ATO who regularly audit them to ensure compliance, so it's not worth flouting the rules. Additionally, SMSFs are required to audit themselves annually.
Can you get a loan to buy a property through an SMSF?
You can get a loan to buy a property through an SMSF but it's a complex procedure with strict rules.
All SMSF loans must be undertaken through what's called a 'limited recourse borrowing arrangement' (LRBA). This involves an SMSF trustee taking out a loan from a third-party lender to purchase an asset that must be held in a separate trust. In practical terms, this limits the recourse of the lender.
For example, if the loan defaults or falls into arrears, the lender's rights are limited to the asset held in the separate trust, meaning the lender has no access to other assets held by the SMSF.
Things to consider
Before entering into an LRBA, you should determine whether:
- the asset you intend to purchase passes the sole purpose test
- the asset is a 'single acquirable asset' (an SMSF loan can only purchase one asset per loan)
- you have a deposit of 20-30% of the purchase price for a residential property or 30-40% for a commercial property (SMSF typically loans require larger deposits than for standard home loans)
- the SMSF will be able to handle any interest rate rises
- the investment aligns with the fund's investment strategy
In addition to purchasing property, you can use borrowed cash from an LRBA to pay for repairs and maintenance to a property that is part of the SMSF.
What does repairs and maintenance mean?
It's worth noting 'repairs and maintenance' is different to improvements when it comes to SMSF lending.
You can't use borrowed funds to improve the property. Improvements include things like additions, granny flats, or other extensions. However, you are permitted to use borrowed cash for renovations but only where you are returning the fixture to a new condition as this is classified as repairs.
For example, if you were to replace an old kitchen benchtop with a new one, you could use borrowed funds. But you wouldn't be able to use borrowed funds to pay to extend that bench, as this would be an improvement.
"You need to ensure everything is set up and ready to go before considering a purchase. An SMSF can take time to set up and be purchase-ready so don't try to do this last minute before or after signing a Contract of Sale. "You need to take compliance seriously. You'll need a professional to guide you certainly, but you also need to take the time to research your obligations under the Superannuation Industry Supervision (SIS) Act to ensure the SMSF remains compliant as serious penalties can apply for non-compliance. "For new SMSFs, the most common error we see if signing a Contract of Sale before the rollover is complete. Rolling your superannuation into a new SMSF can take up to four weeks, depending on the fund. If you sign a contract when the SMSF doesn't have funds available in its own bank account, the SMSF won't be able to pay the deposit on the contract. "SMSFs are very complex and the cost/penalties for non-compliance can be huge. It's really important to have a conversation with your accountant/financial planner and make a full plan and ensure the SMSF has a compliant investment strategy to suit that. "If you're dealing with a broker for a loan to purchase a property, SMSF loans aren't actually too difficult, however there are some nuances with SMSFs that can cause issues if done incorrectly. If you're dealing with your own broker who doesn't specialise in SMSFs, then I'd highly recommend to get a pre-approval for the loan first to avoid any issues later."
What the expert says
Which lenders provide SMSF loans?
SMSF loans and LRBAs are becoming less common in the lending market with the big four banks and many other institutions no longer offering such products due to their complexity and the relatively small profit margins associated with them.
Some lenders (but not all) that offer SMSF loans at the time of writing (April 2026) include:
Bank of Queensland (BOQ)
- AMP Bank
- Regional Australia Bank
- Unity Bank
- G&C Mutual
La Trobe Financial
Liberty Financial
Switzer Home Loans
- Pepper Money
Freedom Lenders
Reduce Home Loans
Granite Home Loan
Mortgage Mart
Think Tank
Firstmac
- loans.com.au
Better Mortgage Management
Competitive rates on SMSF property loans
The table below features SMSF loans with some of the most competitive interest rates currently available on the market.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.89% p.a. | 6.91% p.a. | $3,290 | Principal & Interest | Variable | $0 | $230 | 60% |
| Promoted | Disclosure | ||||||||||
7.14% p.a. | 7.19% p.a. | $3,374 | Principal & Interest | Variable | $0 | $220 | 70% | Disclosure | ||||||||||||
7.24% p.a. | 7.26% p.a. | $3,407 | Principal & Interest | Variable | $0 | $230 | 80% | Disclosure |
Buying a property through an SMSF using an LRBA
The process of purchasing a property through an LRBA is not so different from a regular property purchase. The main difference is in the processing of the application.
There are harsh fines of more than $200,000 for trustees should the application not be properly structured or compliant. If you haven't done it before, it's recommended you seek out a specialist mortgage broker and an accountant to step you through the process.
Here's a general idea of how the application process works:
You, the trustee, and other trustees (if applicable) identify a property that you wish to purchase, after analysing potential capital gains, rental income, market value, and any compliance issues.
A custodian is appointed for the property. The custodian, also known as a ' bare trustee ', holds the property title on the trustees' behalf until the loan has been completely paid off.
You submit the application with the corresponding documentation.
The custodian issues payment for the deposit and the contracts for the purchase of the property are exchanged.
Should the lender approve your application, the custodian puts the property up as security with the lender so the transaction can be finalised and pay the stamp duty and legal costs.
Once the loan has settled, you start your repayments and start collecting rent. If the rent doesn't cover your repayments, then the difference needs to be made up from internal SMSF funds.
Once the loan has been repaid, the title can be transferred from the custodian to the SMSF.
What are the tax consequences of SMSF property investment?
One of the biggest reasons people buy a property through an SMSF is to harness potential tax benefits.
Just as in an individual's tax return, a SMSF's taxable income is the fund's gross income minus its permitted deductions. However, all SMSFs are taxed at 15% while in the fund accumulation phase which is far lower than most people's marginal tax rates. When your SMSF is in its pension phase, it is completely exempt from tax.
It's important to note the 15% tax rate is for complying funds. If the SMSF is a non-complying fund, which means you've either been issued a notice of non-compliance or you're not a resident of Australia, you could be taxed at a rate of 45%.
What about capital gains tax?
Another potential tax benefit of SMSF property investment is the capital gains tax (CGT) discount. When you sell a property as an individual, you can either make a capital gain by selling it for more than you bought it for, or a capital loss, where it's sold for less than you bought it for. CGT is the tax incurred on the profit of the sale of your property, with the capital gain added to your assessable income. In practical terms, this can drastically increase the amount of tax you pay.
If a property in an SMSF is sold before it has been owned for a year, then the CGT is at the regular tax rate of 15% (if the fund is in its accumulation phase). However, to discourage investors from flipping houses too quickly, if the property is sold after it's been held for one year, the SMSF receives a one-third tax discount on any capital gain it makes from the sale. This effectively brings the CGT down to 10%. If the property is sold during the SMSF's pension phase, then no CGT is payable.
Other tax benefits
If the property was bought via an SMSF loan, there are other potential tax benefits, including:
- interest payments on the loan could be tax-deductible to the SMSF
- if your expenses exceed your rental income, that taxable loss may be carried forward each year to offset future taxable income
Remember to use the information we've provided as a generalisation and contact the ATO, or check its website , for your specific questions, especially if you're setting up your SMSF purely for tax purposes.
It's strongly recommended you consult a qualified tax advisor before making any serious decisions. There are many variables to consider.
Savings.com.au's two cents
Buying a property through an SMSF can be an arduous and complicated task. But if you already have an SMSF, you're no doubt aware of the complications that can arise from its intricate financial structure and the overarching regulatory framework.
That said, SMSF property investment can be a viable strategy for some, whether it's for diversification of assets or for commercial use. It can also come with significant tax benefits. But in some cases, the negatives can outweigh the benefits due to the liquidity and cash flow issues it may create.
Whatever avenue you take, the most important thing is to remain compliant. This may require a team of professionals to ensure your fund is operating within the law. If you decide to go ahead with the buying process, it can pay to engage specialist accountants and financial advisors to guide you through the buying process and ensure the sale meets the many legal, tax, and auditing requirements.
Factors to consider when buying a property through an SMSF
As well as the multitude of restrictions, conditions, rules, and red tape, there are also a number of other factors you should consider when looking to buy a property through an SMSF.
These should be considered before investing in a property, as part of your investment strategy. Taking these into account after purchasing a property could result in less than impressive financial results for your SMSF.
Cashflow impact
When an SMSF reaches the pension phase, it legally has to pay out the minimum pension amount and this amount increases as trustees get older. That's why it's important an SMSF has a diversification of assets, such as a range of shares, cash, and property.
Diversification means that if one asset class is down on performance, the other assets can continue to adhere to the sole purpose test (the golden rule!) of providing benefit to the fund members.
Cash and shares are generally considered to be more liquid assets than property as they're typically easier to access and move around. Property, on the other hand, is about as non-liquid an asset you can get - it's rigid, takes time to sell, and it's generally difficult to access the equity or value in it. That's why it can be a risky asset to hold in an SMSF as it restricts access to ready cash, which could see your fund fail the sole purpose test. This is why it's vital the selling of the property is equally as planned as the purchase of it.
Compliance
It's been mentioned multiple times but it's hard to overstate the enormity and importance of the compliance that comes with buying a property through an SMSF. You are legally required to audit your SMSF each year, which alone is a big commitment, but the ATO also carries out random audits on SMSFs to ensure they're compliant.
Of course, you can outsource many of the tasks required to be compliant, but not only can this render your lone ranger SMSF efforts obsolete, there can be considerable costs involved. SMSFs and compliance go hand in hand, and they're much of what makes SMSF property investment a little daunting.
Expenses
Investors are often put off SMSF property investment due to the wide variety of associated expenses. It can take a team of accountants, lawyers, and various other parties to ensure everything is above board and on schedule, which doesn't come cheap. Costs can include:
upfront fees
advice fees
legal fees
stamp duty
bank fees
ongoing property management fees
- approved auditor fees
- accountancy fees
- SMSF supervisory levy
Costs: Mainstream super funds vs SMSFs
Most SMSFs pay a lot more fees than industry superannuation funds. The average total cost of running an SMSF as a percentage of the fund's balance is known as the expense ratio.
The average expense ratio for an APRA-regulated super fund was 0.4%, according to the latest APRA figures.
For an SMSF, the expense ratio greatly depends on the size of the SMSF. Generally, the smaller the fund, the higher the rate can be as funds have to cover much the same costs.
Here's an estimate of the expense ratio, as at 2025, according to fund size:
- under $1m - 1%-2.1%
- $1m to $2m - 0.5-1.1%
- over $2m - < 1%
Additional contributions
If you find you don't have enough liquidity in your SMSF, or you need some extra cash to pay off a loan you have in an LRBA, you might decide to put some of your own cash into your SMSF.
It's important to remember that if you do this, you cannot access that cash until you are pension age as the cash will count as an additional super contribution.
An SMSF is not like a savings account that allows you to withdraw and deposit as needed. That's why it's so important to go into the process of buying a property with a clear and tangible investment strategy.
Pros and cons of buying a property through an SMSF
Buying property through an SMSF can be a great way to expand your investment portfolio and diversify your fund's assets. But it's often fraught with compliance issues and expenses.
Here are some pros and cons to consider in assessing if it could work for you:
Pros
- Tax benefits: Buying property through an SMSF could provide a significant tax break to trustees. Super funds, including SMSFs, are generally taxed at 15% in the accumulation phase, well below most Australians' marginal tax rates. Additionally, any capital gains on the property could be taxed at a discounted rate of 10%, further bringing down your taxable income.
- LRBA: A limited recourse buying arrangement could allow you to use borrowed funds to purchase a property through an SMSF, as well as make repairs to an existing one, while also limiting any risk to other assets within the fund by placing the property in a separate trust.
- Control: An SMSF gives you more control over your retirement money. Buying property might also be beneficial to you commercially if you lease it back to yourself although the sole purpose test requires you to legally engineer the best financial outcome for your retirement.
Cons
- Time: Managing an SMSF alone can be a huge amount of work. Once you add the complexity of purchasing a property through it, things can become even more complicated. Of course, you can get professionals to assist you but there may still be a considerable amount of work to be done on your behalf. If you don't have the financial experience and time management to deal with this, your fund could face hard times.
- Costs: SMSF property investment typically involves a plethora of fees, in addition to regular SMSF costs. As well as this, you'll probably need to hire an accountant at the very least to help you through the process, which will again cost money. Without a strict budget and strategy, you could find yourself in a hole very quickly.
- Risks: All property investment comes with a considerable amount of risk but that applies arguably more so with SMSF property investment. The amount of compliance that comes with it, the red tape, restrictions, and legislation could all make for a convoluted and stressful investment experience.
Frequently Asked Questions
Yes, you can buy a property owned by your SMSF but it must be purchased at market value and on an 'arm's length' basis. This means the transaction must be conducted on purely commercial terms as if the property was being bought and sold by two independent, unrelated parties.
Be aware, this transaction often triggers capital gains tax and stamp duty and, while permitted, it will require careful navigation of ATO regulations.
No, you cannot live in a property purchased through your self-managed superannuation fund. The ATO requires residential property held in an SMSF be used solely to provide retirement benefits, meaning you, your relatives, or any related parties cannot live in it, rent it, or use it for holidays.
An SMSF can buy residential and commercial property, including offices, factories, retail shops, and warehouses, provided the property passes the 'sole purpose test' to provide retirement benefits.
SMSFs can also buy mining claims, serviced apartments, or rural property, as long as they are used for investment purposes, not personal use. The purchase of vacant land is generally not permitted.
Buying property through an SMSF can be worth it for higher-income earners seeking tax-efficient growth as part of a diversified investment strategy.
It is often considered beneficial for individuals with substantial super balances who want to invest in a specific commercial property for their business or want to leverage rental income for long-term growth, typically over 10 or more years. However, it involves high setup costs, complex compliance regulations, and considerable risk.
Disclaimer
Savings.com.au does not provide tax advice. This material has not been prepared by Savings.com.au and is for informational purposes only, and is not intended to provide, and should not be relied on for, tax advice.
Savings.com.au recommends seeking the independent advice of a qualified financial adviser specialising in superannuation or tax before making any decisions.
