What every SMSF trustee needs to know
Borrowing inside a self-managed superannuation fund to purchase property is one of the most powerful strategies available to Australian investors — but it's also one of the most regulated and lender-specific areas of finance.
Here's what you need to understand before you proceed.
The Limited Recourse Borrowing Arrangement (LRBA)
All SMSF property borrowing is done through a Limited Recourse Borrowing Arrangement. This means the lender's recourse is limited to the asset being purchased — the rest of your SMSF assets are protected. The property is held in a bare trust (sometimes called a holding trust or custodian trust) until the loan is repaid, at which point title transfers to the SMSF.
Getting the structure right from the start is critical. Errors in the trust documentation, the loan structure or the fund's investment strategy can trigger compliance issues with the ATO.
Who can lend to your SMSF?
The SMSF lending panel is considerably narrower than the residential market. Most major banks have pulled back from SMSF lending, leaving a smaller group of lenders — predominantly non-bank and specialist lenders — who understand the space and have appetite for it.
This is where having a broker with genuine SMSF experience matters. Approaching the wrong lender wastes time and creates unnecessary credit enquiries against your fund.
Residential vs Commercial SMSF lending
Your SMSF can purchase both residential and commercial property — but the rules differ. For commercial property, there is a significant advantage: your SMSF can purchase the premises your own business operates from, and pay market rent to the fund. This is known as a related party transaction, and it's one of the most tax-effective structures available to business owners.
What we recommend before you start
Before approaching a lender, you need to ensure your SMSF investment strategy explicitly permits property investment and borrowing, your trust deed allows borrowing, you have a compliant bare trust structure in place (or are ready to establish one), and you've considered the serviceability impact on your fund — lenders will assess income from all sources including rental income and member contributions.
Working with a specialist broker alongside your SMSF accountant and a specialist SMSF solicitor gives you the best chance of getting this right the first time.