A beginner’s guide to buying property through an SMSF


By AMP financial planner Dianne Charman*

Self-managed super funds (SMSFs) are the largest sectors in the Australian superannuation industry and the trend could well continue with around 33,000 new SMSFs set up every year1.

While people have generally always been able to buy property through self-managed super funds, what has changed in the past few years is that SMSFs can now borrow money to do so. This has meant that people are now able to use their SMSF to invest in properties they may not have previously been able to afford.

Buying a property through an SMSF should not be the reason someone chooses to set up an SMSF, but it can be an option for people who want more control over their super.

Purchasing property through an SMSF can be particularly advantageous for small-business owners because, under superannuation law, they’re typically allowed to use the property as their business premises. Don’t count on operating rent-free or at a discount though – rent must be paid to the SMSF at market value. It’s also against the rules to use the property “on the quiet” as a holiday home. The penalties are high and not worth the risk.

While there’s no doubt managing your own SMSF takes dedication, time and quite a bit of money, there are also big pluses such as potentially substantial tax benefits and having more control over your superannuation.

Due to the popularity of SMSFs, many financial institutions are now offering in-house administration support, such as SMSF administration, software and education services provider SuperConcepts. Services like this can assist with keeping the day-to-day paperwork in check, arranging your annual audit and tax returns, and helping with the general compliance needs of your SMSF.

Here are five things you need to consider about SMSFs:

How much money do you need to get started?


According to recent research from SuperConcepts and the University of Adelaide’s International Centre for Financial Services, as a general guide you need a minimum of $200,000 in existing super savings for an SMSF to be a cost-effective option. Large SMSFs perform better than small SMSFs because they are more diversified, operate more effectively and have longer experience in the sector.

A minimum of $200,000 ensures you will have enough money to allow some diversification in your investments. Putting all your super eggs into the one property basket, rather than spreading a portfolio across other types of investment, can be a risky strategy.

Remember, this recommended fund size is based on the entire fund balance, which includes the superannuation assets of all fund members (e.g. your spouse).


How much can you borrow?

Banks will generally allow SMSFs to borrow around 70-80 per cent of the property value, however it is more desirable to have at least a 50 per cent deposit so the property is positively geared or close to it.

Tax-deductible personal super contributions, salary sacrifice contributions, and compulsory super guarantee payments made into your SMSF, as well as any rent your fund receives on the property, can all be used by your SMSF to help cover the loan repayments.

It’s also important to have a sound strategy in place to pay the property off over time.


What are the benefits of an SMSF?

If you buy a property through an SMSF, the fund will pay a maximum 15 per cent tax on rent it receives from the property. On properties held for longer than 12 months, the fund receives a one third discount on any capital gain it makes upon sale, bringing any capital gains tax liability down to a maximum of 10 per cent3.

Once fund members start receiving a pension at retirement – assuming they’ve held the property in the fund for this long – the fund will no longer pay tax on either rental income or capital gains when the property is sold.


Who is it not right for?

Purchasing property through an SMSF is not advisable for people who don’t have a large enough lump sum to allow diversification of their investments. Ideally you would allocate a percentage to other investments such as shares and/or term deposits.

And, borrowing through an SMSF may not be a good idea for low-income earners who are really going to stretch themselves in terms of cash flow.


Things to weigh up

With great power comes great responsibility and there is no doubt that managing an SMSF successfully requires a lot of expertise, time and money.

It can cost around $2000 to set up an SMSF, but there are also adviser fees, accountant fees and ongoing annual costs to consider.

Further, there are rigorous auditing and reporting requirements for an SMSF and the ATO can impose harsh penalties for those who do not comply, so it is vital you get appropriate tax, legal and financial advice.

If you are considering buying a property through an SMSF, the first step should be to speak to a financial adviser about whether this strategy would suit your investment goals, timeframe and feelings about risk.

Buying property through an SMSF can be a powerful way for business owners to build their superannuation, ensuring you will be able to live the life you want in retirement. However, it’s important to be clear about your obligations and have the time, money and ability to meet them.

  1. SMSF Statistical Report – June 2016, published by the Australian Taxation Office.
  2. The Government has announced that, from 1 July 2014, the amount of exempt current pension income available to superannuation funds will be limited to $100,000 a year for each individual. Should this measure become law, fund earnings, derived from pension assets, above this limit will be taxed at the 15 per cent rate that applies to earnings in the accumulation phase. This measure is not yet law.


* Dianne Charman is an authorised representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.

Any advice given is general only and has not taken into account your objectives, financial situation or needs.  Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.


Dianne Charman

Dianne Charman is mother, accomplished business woman and Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.


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    April 3, 2014 at 6:46 am

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    October 1, 2014 at 8:18 pm

    amazing insight. Really enjoyed reading this blog.

    Keep up the good work and to everyone keep on learning!

  4. SMSF Property Investment

    June 19, 2015 at 1:38 pm

    Hi Dianne,
    That was a very comprehensive beginner guide 🙂 There were some really strong smsf investing points in there. What are your thoughts in SMSF Property Investing in the current climate? Many thankks

  5. Richard

    February 12, 2016 at 10:36 am

    Ummm there are other huge advantages to having your own Super. Yes costs may be higher but you directly control your assets. If things really go pear shaped you can literally take the money and run. You can’t do that if all your money is in a large retail fund. (as I write this I suspect things are about to go seriously pear shaped) Also SMSFs can invest in physical Gold and Silver Bullion bars. Managed funds can only invest in paper. I think some people get so bogged down in rules and regulations they don’t see the big bigger and they don’t understand that when the dust settles all that matters is who physically controls the assets. If it’s a SMSF then it’s you!

  6. Tax Accountant Brisbane

    September 27, 2016 at 6:23 pm

    The cost of borrowing money might be cheap right now, but the interest rate on an investment property will be higher. Remember, you need a mortgage payment that’s low enough so that it won’t eat too heavily into your monthly profits.

  7. Zachary Tomlinson

    January 26, 2017 at 10:41 am

    I like that you pointed out that you need about $200,000 to start a good superannuation account. I’m trying to see what would be best for me, and I’m looking at a self-managed superannuation. I totally agree with your estimate.

  8. Helene

    June 26, 2017 at 4:19 pm

    Just need some information
    My husband would like to SMSF into a small B and B in a very popular area, it will have a home on the property also.
    We would have the 200,000 to start, we want to know if we could rent the house and run the business.

  9. Catherine

    October 23, 2017 at 9:26 pm

    i have a self managed super fund and i have turned a $340,000 house into a $650,000 house in 3yrs.. our $200,000 investepment is now over $500,000 in cash… we are very lucky.. just want to know can we use the collateral to buy another property or do we have to sell it and buy 2 ?? looking at buying 2 x $520,000 properties. if we invest $400,000 and leave $100,000 in the kitty. or can we keep the house we have and use the collateral.. im not sure if we can do it

    • Megan Houston

      Megan Houston

      October 27, 2017 at 10:30 am

      Hi Catherine,
      There’s lots to consider when it comes to using your SMSF to buy a property and without having a full understanding of your personal situation it’s difficult to provide advice. Working with an impartial professional can assist you in understanding the options that are available to you. Please feel free to get in touch with Di Charman on 07 3202 2470 if you want to have an initial discussion about your objectives.

  10. They need to invest with care, ability and diligence.

  11. Velan Super

    January 9, 2018 at 12:51 am

    Awesome info about buying property through SMSF

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