

Buying a Residential Property with Your SMSF
Investing in residential property through a Self-Managed Super Fund (SMSF) can be a strategic way to build long-term wealth for retirement.
However, strict superannuation laws govern these investments, and trustees must ensure they comply with the Sole Purpose Test and ATO regulations.
At HelloLedger, we assist SMSF trustees with compliance, reporting, and administration when purchasing residential property, ensuring your fund meets legal obligations every step of the way.



Can an SMSF Buy Residential Property?
Yes, an SMSF can buy residential property, but there are rules and restrictions:
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The property must meet the Sole Purpose Test, meaning it must be purchased solely to provide retirement benefits for members.
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It cannot be lived in or rented by a member, their relatives, or related parties.
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The property must be held in the name of the SMSF and managed in accordance with the fund’s investment strategy.
Key Compliance Rules for SMSF Residential Property Investments
1. Sole Purpose Test
The property must be purchased to generate income or capital growth for retirement purposes. Any personal use of the property by members is strictly prohibited.
2. Related Party Restrictions
SMSFs are not allowed to:
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Buy property from a related party.
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Rent property to a related party—even at market rates.
This rule prevents potential conflicts of interest and ensures the fund operates at arm’s length.
3. Borrowing to Purchase Property
SMSFs can borrow money to buy residential property using a Limited Recourse Borrowing Arrangement (LRBA). However, strict rules apply, including:
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The loan must be non-recourse, meaning the lender only has a claim against the property itself, not other SMSF assets.
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The property must be held in a separate trust until the loan is repaid.
4. Property Management and Repairs
All expenses, such as rates, insurance, and maintenance, must be paid directly from the SMSF’s bank account. Trustees must maintain accurate records to demonstrate compliance.
Advantages of Buying Residential Property with an SMSF
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Tax Advantages:
Income earned within the SMSF is taxed at a concessional rate of 15%, and capital gains tax may be reduced to 10% if the property is held for more than 12 months.
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Retirement Security:
Property can provide stable rental income and potential capital growth for retirement savings.
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Leverage Opportunities:
SMSFs can use borrowed funds through LRBAs to invest in property, amplifying returns.



Important Considerations Before Investing
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Liquidity Risks:
Property investments are illiquid, meaning they may not be easily sold to pay benefits when members retire.
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Borrowing Risks:
Loans under LRBAs can increase financial risks if the property value falls.
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Ongoing Costs:
Trustees must budget for maintenance, insurance, and loan repayments from the SMSF’s funds.
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Compliance Requirements:
SMSFs must comply with annual audits, valuation rules, and investment strategy reviews to avoid penalties.
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Valuation Requirements:SMSFs must value the property at market value annually for reporting and audit purposes.
HelloLedger provides support with compliance reporting, loan documentation, and ongoing administration to help manage these challenges.


Buying Residential Property with an SMSF
FAQs
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Can I live in a property owned by my SMSF?
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No, SMSF trustees and related parties cannot live in or use residential properties owned by the SMSF. The property must meet the Sole Purpose Test for retirement benefits only.
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Can my SMSF borrow money to buy a residential property?
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Yes, SMSFs can borrow money through a Limited Recourse Borrowing Arrangement (LRBA), but strict rules apply. HelloLedger can assist with compliance documentation and loan setup.
Are residential property earnings taxed within an SMSF?
Yes, rental income is taxed at a concessional rate of 15% in the accumulation phase and can be tax-free in the pension phase. Capital gains are also taxed at 10% if held for more than 12 months.
Can I renovate or develop a property owned by my SMSF if purchased through a LRBA?
Renovations that improve the property (not just maintain it) may breach borrowing rules under LRBAs. Careful planning is required, and we can help you assess compliance risks.
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Can my SMSF purchase a property from a family member?
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No, SMSFs are not allowed to purchase residential properties from a related party, including family members, under superannuation laws.
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What happens if my SMSF breaches compliance rules?
Non-compliance can lead to penalties, including loss of concessional tax benefits and fines imposed by the ATO. HelloLedger helps trustees avoid breaches through ongoing compliance support.
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What records do I need to keep for SMSF property investments?
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Trustees must keep:
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- Purchase contracts and loan documents.
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- Rental agreements and payment records.
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- Valuation reports for annual reviews.
HelloLedger assists with record-keeping and audit preparation to ensure compliance.