Property and SMSFs

Is property investment right for your SMSF?

For SMSF trustees, investing in property can be a smart way to increase the value of retirement savings and provide tax effective investment returns. But there are specific rules and regulations that must be considered before deciding whether to purchase a property through your SMSF. Owning an investment property as part of your SMSF can provide a number of benefits including:

  • tax advantages 
  • potential growth
  • diversification

These potential benefits need to be weighed up alongside the risks of owning an investment property as part of your SMSF, including liquidity risk, legislative risk and interest rate risk, in addition to property ownership reducing the diversity of your SMSF investments, which may expose you to increased property market risk. Our SMSF investment adviser’s can discuss the investment considerations of purchasing an investment property as part of your SMSF and may be able to provide alternative options to give your exposure to property assets in your SMSF. 

What you need to know about SMSF property investment

Further to the key considerations for property investing there are particular costs and risks you need to be aware of when using an SMSF to gear into property including:

  • being potentially more costly than other property loans
  • maintaining sufficient liquidity or cash in the SMSF to make loan repayments
  • complexity of loan documentation and contracts, where, if not set up correctly, unwinding the arrangement may not be allowed and the property may have to be sold at an unfavourable time
  • not being able to offset any tax losses from the property against personal taxable income outside of the SMSF
  • limitations to alter and improve the property until the loan is repaid.

Investment properties held by an SMSF are also governed by specific ownership and usage regulations. These rules include that:

  • the property must be used solely for providing retirement benefits to members
  • members cannot live in the property
  • members cannot lease the property themselves or to a family member
  • the property cannot be purchased by a related party of a member.

However, an SMSF may purchase business premises and allow the member/s to pay rent as there are limited recourse borrowing arrangements that SMSFs can use, but strict conditions must be adhered to. Our financial advisers and SMSF account managers can discuss the rules associated with SMSF property investment with you.