What is a self-managed super fund (SMSF)?

A self-managed super fund (SMSF) is a private superannuation fund which you manage yourself, giving you greater flexibility, control and options on how and where your retirement savings are invested. If you decide to set up your own self-managed super fund, you will not only be responsible for the investment decisions, but also compliance with the relevant superannuation and taxation laws, which can be time consuming. 

If you operate a self-managed super fund, you can invest your retirement savings in property provided the property is acquired for the sole purpose of providing retirement benefits to fund members. If you need to borrow money to fund the purchase, you will also need to comply with the Superannuation Industry (Supervision) Act 1993 rules on limited recourse borrowing arrangements.

Provided you have established the required limited recourse borrowing arrangement, there is no set rule on how much a super fund can borrow to buy property. Most self-managed super fund loans allow up to 70% loan-to-value ratio and 30-year loan terms with a minimum loan amount of $100,000.

Property purchased through a self-managed super fund cannot be lived in or rented out to any fund member or their relatives. This includes short term accommodation such as Airbnb and holiday homes. The Superannuation Industry (Supervision) Act 1993 further prohibits the acquisition of property from fund members or their relatives, so you cannot transfer your existing investment property to your self-managed super fund.

You can purchase a property off-the-plan using a self-managed super fund if the property meets the requirements of the Superannuation Industry (Supervision) Act, and in particular, where the SMSF is borrowing funds, that they meet the single acquirable asset rule of the limited recourse borrowing arrangement.

The ATO has clarified that a single limited recourse borrowing arrangement may be entered into to fund both the deposit and the balance of the contract price. However, where the property has multiple titles, for example, where the contract allows you to purchase additional parking spaces, or if you are buying land to build on under a separate building contract, these may not meet the single acquirable asset requirement, and you may be required to establish more than one bare trust and enter into an additional limited recourse borrowing arrangement.

Due to the additional risks that may apply to a SMSF purchase of property off the plan, a contract should not be entered into before seeking the appropriate legal advice from an experienced conveyancer, and financial advice from an accountant.