SMSF property lending basics
Self-managed super funds can borrow to invest in property under specific rules. This article introduces the key concepts — but given the complexity, independent professional advice is essential before proceeding.
Important advisory
SMSF property lending is a complex area involving superannuation law, tax, property and credit regulation. This article is for general information only. We strongly recommend you engage independent legal, financial and tax advisers before making any decisions about borrowing within an SMSF.
SMSF property lending is a complex area involving superannuation law, tax, property and credit regulation. This article is for general information only. We strongly recommend you engage independent legal, financial and tax advisers before making any decisions about borrowing within an SMSF.
What is an LRBA?
A Limited Recourse Borrowing Arrangement (LRBA) is the only way an SMSF can legally borrow to purchase an asset. Under an LRBA, the asset is held in a separate holding trust until the loan is repaid. If the SMSF defaults, the lender's recourse is limited to the asset in the holding trust — it cannot access other SMSF assets.
Once the loan is fully repaid, the asset transfers from the holding trust into the SMSF.
Key rules and requirements
The property must be a single acquirable asset — generally cannot borrow to purchase multiple assets
The property must meet the sole purpose test — it must be held to provide retirement benefits to members
Residential property purchased by the SMSF cannot be lived in by fund members or related parties
Business real property (commercial) can be leased to a related party at market rent
All contributions, rental income and loan repayments must flow through the SMSF's bank account
The SMSF must have adequate cash flow to service the loan and meet ongoing expenses
The fund must remain compliant under the SIS Act — annual audits are required
Is your SMSF ready to borrow?
Your fund has an adequate balance — lenders typically require a minimum fund balance
Your SMSF trust deed permits borrowing and LRBA arrangements
You have a corporate trustee or individual trustees in place
The fund is fully compliant and has a current audit
You have obtained advice from an SMSF specialist and/or financial adviser
You have engaged a solicitor familiar with SMSF and LRBA structures
Important risks and considerations
SMSF lending is not available from all lenders — the market is limited and criteria are strict
Non-compliance with LRBA rules can result in the ATO making the fund non-complying — with significant tax consequences
Rental income earned inside the SMSF is taxed at 15% — but only while in accumulation phase
If you or a related party live in or use the residential property, the fund may fail the sole purpose test
Ongoing compliance requirements (audits, tax returns, valuations) add cost and complexity
Market downturns can leave the fund with a negative equity position — debt is still owed
This is a long-term structure — early exit may involve costs and complexity
Documents typically required for SMSF lending
SMSF trust deed (including all amendments — lenders read the deed carefully)
Most recent 2 years of SMSF financial statements
Most recent SMSF tax return and ATO notice of assessment
Member statements showing current balance and contributions
Trustee ID — all individual trustees or directors of a corporate trustee
SMSF ABN and TFN
Property contract of sale or details of the target property
Accountant or auditor details
Evidence of LRBA-compliant holding trust structure (your solicitor prepares this)
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General information only
This article is for general information purposes only and has been prepared without taking into account your objectives, financial situation or needs. It does not constitute credit advice, financial advice or a recommendation. You should consider whether this information is appropriate for your circumstances and obtain independent advice where necessary. K&M Solutions and Services Pty Ltd (ACN 649 305 126) does not hold an Australian Credit Licence.
This article is for general information purposes only and has been prepared without taking into account your objectives, financial situation or needs. It does not constitute credit advice, financial advice or a recommendation. You should consider whether this information is appropriate for your circumstances and obtain independent advice where necessary. K&M Solutions and Services Pty Ltd (ACN 649 305 126) does not hold an Australian Credit Licence.