Key takeaways
- An SMSF can buy property, but it must be for retirement, not personal use.
- Members and relatives cannot live in or rent a residential property the fund owns.
- Business real property can be bought from, and leased to, a related party at arm's length.
- Property is illiquid, so the fund must still meet expenses and pension payments.
Property is one of the most talked-about SMSF investments, and one of the most misunderstood. A fund can hold property, but the rules are strict, and breaching them is expensive. Before the appeal of bricks and mortar takes over, it pays to know the boundaries.
Residential property
An SMSF can own residential property as an investment, but with hard limits: the fund cannot acquire it from a related party, and no member or relative can live in it or rent it, even at market rent. It must be a genuine, arm's length investment. If you want to use it yourself, an SMSF is the wrong vehicle.
Business real property
Commercial or business real property is treated more flexibly. The fund can acquire it from a related party at market value, and it can be leased to a related party, including your own business, provided the lease is on arm's length terms and properly documented. This is why many business owners hold their premises in their SMSF.
Borrowing to buy
A fund can borrow to buy property only through a limited recourse borrowing arrangement, with its own strict rules, including that borrowed money cannot be used to improve the property in a way that changes its character. The whole property and borrowing category covers this in detail.
Weigh the practicalities
- Liquidity. Property is hard to sell quickly. The fund still needs cash for expenses, tax and, in pension phase, minimum payments.
- Diversification. A single property can dominate a fund, which the investment strategy must address.
- Costs. Stamp duty, legal, and ongoing property costs all come from the fund.
Property in super can work well, particularly business premises, but it is a decision to model carefully against your fund's cash flow and goals. This is general information, so get advice tailored to your situation before committing.
Frequently asked questions
- Can I live in a property my SMSF owns?
- No. Neither you nor any relative can live in, or rent, a residential property your SMSF owns, even at market rent. Doing so breaches the sole purpose test and is a serious compliance problem.
- Can my SMSF buy my business premises?
- Yes. Business real property is an exception to the related-party rules. Your fund can buy it from you at market value and lease it back to your business, provided the lease is on arm's length terms and properly documented.
- Can my SMSF borrow to buy property?
- Only through a limited recourse borrowing arrangement, which has strict conditions. Among them, borrowed money cannot be used to improve the property in a way that changes its character. See our property and borrowing guides.
