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    SMSF Property

    Buy investment property inside your Self-Managed Super Fund

    What is SMSF Property?

    A Self-Managed Super Fund (SMSF) can borrow to purchase investment property through a Limited Recourse Borrowing Arrangement (LRBA). Rental income is taxed at just 15% inside super (0% in pension phase), and capital gains at 10% (0% in pension phase), a potentially significant tax advantage.

    How it works

    1. 1Establish an SMSF with a corporate trustee (minimum $200,000–$300,000 in super recommended)
    2. 2Set up a "bare trust" (holding trust) to hold the property during the loan period
    3. 3SMSF borrows through an LRBA, lender's recourse is limited to the property only
    4. 4SMSF contributes a deposit (typically 20–30% of purchase price)
    5. 5Rent is paid into the SMSF; once loan is repaid, title transfers from bare trust to SMSF

    Worked example

    SMSF balance: $400,000. It buys a $600,000 residential investment property.
Deposit 30% = $180,000, plus about $40,000 of costs = $220,000 from the fund.
LRBA loan: $420,000 at 7.0% = $29,400 a year interest (SMSF loans are usually priced above personal loans).
Rent: $28,000 a year. Interest alone exceeds the rent, so there is no net rental profit to tax at first.
Once the property makes a net profit, it is taxed at 15% in the fund (0% in pension phase for assets supporting a pension), against your marginal rate outside super.

    Pros

    • Rental income taxed at 15% (or 0% in pension phase) vs up to 47% personally
    • Capital gains at 10% (50% discount of 15%), or 0% in pension phase
    • Forced retirement savings: super you would have anyway, now in property
    • Asset protection: SMSF assets generally protected from personal bankruptcy

    Cons

    • Complex and expensive to establish: $3,000–$8,000 setup + ongoing audit/accounting $3,000–$6,000/year
    • SMSF loans are usually priced above personal investment loans
    • Strict superannuation rules: sole purpose test, in-house asset rules, related party rules
    • Property cannot be used personally (you cannot live in it or holiday there)
    • Liquidity risk: if the fund needs cash for members, selling property can be slow

    Risks

    • ATO scrutiny of SMSF property strategies is high, non-compliance penalties are severe
    • SMSF cannot borrow additional funds against the property once the LRBA is in place
    • If you retire early and need funds, you may be forced to sell the property
    • Must not breach the "sole purpose test", the property must only benefit members in retirement

    Tax treatment

    SMSF in accumulation phase: 15% tax on income, 10% effective CGT (50% discount on 15%). In pension phase: 0% tax on income and capital gains (up to transfer balance cap). LRBA interest: deductible inside the SMSF. No personal tax deductions for contributions to fund the property. ATO reference: SMSF limited recourse borrowing arrangements.

    Official references

    Keep exploring

    Read property guides on the blog All strategies

    General Advice Warning

    The information on this site is general in nature and does not consider your personal circumstances, financial situation, or needs. Before acting on any information, you should consider its appropriateness having regard to your own situation and seek professional advice from a licensed financial adviser, mortgage broker, accountant, or solicitor.