An SMSF — Self-Managed Super Fund — is a private superannuation fund that gives members direct control over how their retirement savings are invested. SMSFs are regulated by the Australian Taxation Office and must comply with superannuation law.
Can an SMSF invest in property? Yes. An SMSF can invest in residential or commercial investment property, provided the investment:
– Satisfies the sole purpose test — the asset must be held to provide retirement benefits to the fund’s members
– Is not purchased from a fund member or related party (with exceptions for commercial property used in the member’s business)
– Complies with the fund’s investment strategy
Purchasing with borrowing. SMSFs can borrow to purchase property through a Limited Recourse Borrowing Arrangement (LRBA). The property is held in a bare trust until the loan is repaid, with the lender’s recourse limited to that asset.
Tax advantages. Rental income earned within an SMSF is taxed at 15% (accumulation phase), compared to the member’s personal marginal rate (up to 47%) for property held personally. Capital gains on assets held more than 12 months are taxed at 10% within the fund. In retirement phase, both income and gains may be tax-free.
Restrictions. SMSF members cannot live in the residential property or rent it to family members. The property cannot be used for personal benefit of any fund member.
SMSF property investment requires specialist advice from an SMSF accountant, a licensed financial planner, and a broker accredited in SMSF lending.
