Can Your SMSF Actually Buy Property?
Using superannuation to purchase property is one of the most misunderstood strategies in Australian financial planning. With so much conflicting information out there, we sat down to separate fact from fiction and explain how this strategy actually works for small business owners.
Q: There’s a lot of confusion around borrowing inside super. Can you actually use your SMSF to buy property?
Absolutely, and it’s one of the most misunderstood areas of superannuation law. The myth that “you can’t borrow money in super” has been around for years, but it’s simply not accurate.
What many small business owners don’t realise is that your super fund can purchase property, including commercial property that your business might be renting. The key is understanding how Limited Recourse Borrowing Arrangements work and whether this strategy suits your particular circumstances.
Q: How does this work in practice for a typical small business owner?
Let’s say you’re a business owner who’s been renting your workshop or office space for years. Those rental payments are essentially building someone else’s wealth while your super sits in a standard industry fund earning modest returns.
Through a self-managed super fund, your super can purchase that commercial property. Your fund puts down a deposit (typically 25% of the property value), and specialist lenders provide the remaining 70% through what’s called a Limited Recourse Borrowing Arrangement.
Your business then pays rent to your own super fund, rather than a landlord. That rental income flows into your super environment, where it’s taxed at just 15% rather than your marginal tax rate.
Q: What kind of super balance do you need to make this viable?
You’ll need roughly $150,000 or more in super to make this strategy worthwhile. That gives you enough for a meaningful deposit on commercial property in regional NSW.
We’re not talking about helping someone with $30,000 in super make speculative investments. This is a long-term wealth-building strategy that requires substantial existing super balances and careful planning.
Q: What if someone doesn’t have enough in their super fund yet?
That’s where strategic super contributions come into play. There are several ways to build your super balance faster:
- Annual deductible contributions: Up to $30,000 per person each year
- Non-concessional contributions: Up to $120,000 per person annually
- Small business CGT concessions: These can allow up to $500,000 as a once-in-a-lifetime contribution opportunity
The key is understanding which combination works for your specific business structure and tax situation. Every business owner’s circumstances are different.
Q: Who actually lends money for these arrangements?
The major banks generally won’t touch this space because they find the compliance requirements too complex. However, there are specialist lenders and various mortgage funds that understand self-managed super funds and offer competitive rates.
These lenders know the regulations inside out and can structure loans that meet all the superannuation compliance requirements. Interest rates are typically similar to standard commercial property loans.
Q: This sounds complicated. How do you manage all the moving parts?
You’re right that it involves multiple specialists. Property investment through super touches accounting, financial planning, lending, legal requirements, and insurance considerations. That’s why having an experienced team is crucial.
When we work with business owners on these strategies and coordinate the entire process. We work alongside financial planners to ensure your investment strategy aligns with your retirement goals, connect you with specialist SMSF lenders, and coordinate with legal professionals for contracts and compliance.
The business owner focuses on running their business while we project-manage the strategy implementation.
Q: What are the main tax advantages?
Inside your super fund, rental income from the property is taxed at just 15%. Compare that to paying your full marginal tax rate (which could be 32.5% or 45% plus Medicare levy) on rental income outside super.
When you eventually move into the pension phase, any income from the property could become completely tax-free. If you sell the property during the pension phase, capital gains may also be tax-free.
For business owners in higher tax brackets, these differences can be substantial over the long term.
Q: Are there any downsides or risks to consider?
Self-managed super funds require active management and compliance with strict regulations. You’re taking on trustee responsibilities that come with legal obligations.
The property market, like any investment, carries risks. Commercial property values can fluctuate, and you need to ensure consistent rental income to service any borrowings.
There are also restrictions on how you can use the property. Your super fund must purchase it as an investment, and there are rules around related party transactions if your business becomes the tenant.
Q: How do you know if this strategy is right for your situation?
It typically works best for business owners who want more control over their retirement savings and can see long-term benefits in property ownership. You need sufficient super balances, stable business income, and a genuine interest in taking a more active role in managing your super.
We always recommend starting with a comprehensive review of your current super situation, business structure, and retirement goals. Not every business owner is suited to self-managed super, and property investment within super isn’t appropriate for everyone.
Q: What’s the first step for someone who’s interested?
The best starting point is an honest conversation about your specific circumstances. We can walk through how this strategy might apply to your business and super situation, explain the compliance requirements, and help you understand whether the benefits justify the additional complexity.
We’ve seen this strategy work well for many regional business owners, but it requires proper planning and ongoing professional support to be successful.
Ready to explore your options? Book a chat with one of our experienced accountants to discuss whether a self-managed super fund property strategy could support your business and retirement goals.
Contact the friendly team at Acumon today on (02) 4931 1100 at Greenhills or (02) 4955 9195 at Lambton – or book a consultation today.