SMSF: Unlocking Property Investment Through Your Super

Using a Self-Managed Super Fund (SMSF) to purchase an investment property is a popular strategy for Australians looking to take control of their retirement savings. However, it's a complex process that requires careful planning and adherence to strict regulations.

What is an SMSF?

An SMSF is a private super fund that you manage yourself. You and up to five other members are the trustees, responsible for all investment decisions and for complying with super and tax laws.

The "Sole Purpose Test"

The most important rule for any SMSF investment is the "sole purpose test." This means the fund must be maintained for the sole purpose of providing retirement benefits to its members. You or your relatives cannot live in or rent a residential property owned by your SMSF.

How it Works: Limited Recourse Borrowing Arrangement (LRBA)

Since you generally can't use your entire super balance, most SMSF property purchases involve a loan. This must be structured as a Limited Recourse Borrowing Arrangement (LRBA). Under an LRBA:

• The loan is used to purchase a single asset (e.g., one property).
• The asset is held in a separate bare trust until the loan is paid off.
• If the loan defaults, the lender's recourse is limited to the asset in the bare trust, protecting the other assets in your SMSF.

Is It Right for You?

Investing in property through an SMSF is not for everyone. It requires a significant super balance, a long-term investment horizon, and a good understanding of the responsibilities involved. Always seek professional financial and legal advice before setting up an SMSF or entering into an LRBA. Our team can connect you with trusted specialists to help you explore your options.