SMSF Loans

Super-leveraged property investment is an ideal way for you to grow and accelerate your retirement nestegg. If you have a self managed super fund or are considering establishing your own super fund, you are now able to use these arrangements to help you buy a residential or commercial investment property.

There are several excellent benefits of utilising a SMSF loan as part of your funds investment strategy.A summary of our most popular Self Managed Super Fund loan products is shown in the table below.

How does a SMSF loan work?

Your SMSF wants to buy property (residential or commercial real estate) but does not have enough funds for the full purchase. The SMSF can now make an equity contribution on the property and borrow the remainder of the funds to complete the purchase. The following diagram illustrates how your SMSF can purchase property.

SMSF Loan Example

Suppose your SMSF has $150,000 in the cash account. As the SMSF trustee, you want to buy an investment property worth $500,000. A trustee buys the property on behalf of your SMSF under an instalment arrangement. Your super funds pays a $50,000 deposit (10%) and you (your SMSF) obtains a loan (representing 70% of the property value) for $350,000 using a limited recourse SMSF loan . The remaining funds to complete the purchase approx $100,000, plus transaction costs (stamp duty etc) are paid from the funds reserves at settlement.

The trustee arranges for the property to be leased to an unrelated party and the rent, together with other SMSF income and/or member contributions are used to make instalment payments. Once the loan is paid off, the legal ownership of the property can be transferred to the SMSF.

Whether your considering establishing a self managed super fund or if you have an existing super fund and would like to purchase or refinance a property and would like to discuss smsf loan options.Contact us today for a personal individual assessment.

SMSF Loans Features & Benefits

Self Managed Super Fund Loan Features

  • The SMSF must purchase property from an unrelated party. Purchases must be arms-length. Refinances are available on a dollar for dollar basis.
  • Investment in property must be consistent with your SMSF investment strategy.
  • The SMSF loan is limited recourse which means that in the event of a loan default the lender only has recourse to the security property and cannot claim any other SMSF assets.
  • The security property is held in bare trust for the SMSF which is entitles to its income.
  • The titleholder (legal owner) of the security property is the bare trust, trustee company. The beneficial owner of the real estate will be the SMSF
  • Your SMSF makes the loan repayments. After the loan is repaid the legal ownership of the property is transferred to the SMSF.
  • Generally acceptable security includes metro real estate in most capital cities, including residential, and non-specialised commercial property.
  • SMSFs can deal with the property however and whenever they like, in the same way as investors can deal with “normal” investment properties (eg: lease, renovate, repair, or sell), (subject to the terms of the relevant loan and mortgage).
  • All rents are paid direct to the SMSF. Loan repayments are made in the ordinary way from the SMSF.
  • The SMSF can pay out or reduce the mortgage at any time (subject to the terms of the relevant loan).
  • When the mortgage is paid out in full, title to the property can be transferred to the SMSF or the Property.

Self Managed Super Fund Loan Benefits

There are tremendous benefits in using a Self Managed Super Funds (SMSF) to purchase Real Estate;

  • Your SMSF can acquire property worth more than its available funds through the benefits of gearing.
  • Your SMSF assets are secure as the lender does not have recourse to your SMSF’s other assets in the event of default.
  • Your SMSF receives all income and capital growth even if the property has not been paid off.Your SMSF can use income from the property to help pay off the loan.
  • Interest expense may be claimed as tax deductions by the SMSF and potentially reduce your SMSF’s tax liability.

To obtain more information on how these new changes can benefit you, see our Self Managed Super DVD Information page.

SMSF Loan Approval Process

1. Establish Your SMSF

The Trust Deed establishing the SMSF must give the Superannuation Fund Trustee power to:

  1. purchase real estate,
  2. borrow money, and
  3. mortgage property to secure repayment of that borrowing.

The proposed investment must comply with the requirements of the Superannuation Industry Supervision Act 1993 (SIS Act) and ensure that the investment in real property is in line with the SMSF’s overall investment strategy, and the proposed purchase complies with all other requirements of the SIS Act (including but not limited to the “in-house asset rules” and the restrictions on acquiring assets from “related parties”). It is important at this stage to verify the available equity in your SMSF as this will effect the ultimate purchase price of the property your fund can acquire.

2. Obtain Loan Approval

We recommend a SMSF loan ‘pre-approval’ prior to exchanging any contracts and paying deposit monies.

3. Establish the Bare Trust Deed

The Property Trust Deed can be established once ‘pre-approval’ is obtained. It is NOT required prior to applying for the loan. In some cases a template will be provided for your accountant or financial Adviser to ‘cut & paste’ the relevant information, including the security property details and trustee information.

It is important that the SMSF Trustee itself is not the Property Trustee. Such an arrangement may breach the requirements of section 67(4A) of the SIS Act and result in the SMSF being non-compliant. It is also undesirable for an individual member of the SMSF to act as bare trustee due to trust law issues regarding the merger of the interests of the trustee and the beneficiary.

4. Purchase Contract can be formalised.

When contracts are exchanged or made unconditional between the seller as vendor and the bare trustee as purchaser, the deposit will be paid by the SMSF.

5. Valuation Ordered & Formal Loan Approval.

Once you have signed your purchase contract and returned to us, the lender will order a valuation and once returned and all outstanding conditions are satisfied, formal approval for your SMSF loan will be issued

6. Lenders Solicitors prepare & issue Mortgage Documents.

The lender will instruct solicitors to prepare your mortgage documents and be issued to you for signing. The SMSF borrowing structure uses normal loan and mortgage documents with special provisions to provide the limited recourse against the property being purchased.

7. Settlement.

The purchase is completed. After registration of the transfer on the mortgage, the transaction/title documents will be held on behalf of the lender.


How does my SMSF purchase a property?

The SMSF chooses the property it wishes to invest in, in the ordinary way. Residential property must be purchased from an arm’s length vendor. Non residential property can be purchased for full value from related parties so long as the property is let for business purposes.

The SMSF obtains a loan approval. The SMSF’s own lawyer/conveyancer acts on the purchase in the ordinary way. The purchase MUST be in the name of the Bare Trustee. The SMSF pays the deposit, the balance purchase money (less the amount borrowed), the legal costs, and stamp duty in the ordinary way. On completion of the purchase the Property Trustee mortgages the property to the lender. SMSF then manages the asset in the same way as you would with any other real estate investment.

Am I required to obtain financial or legal advice in order to obtain the SMSF Loan?

Depending on lender requirements most SMSF loans generally require the funds members to sign a certificate of independent financial & legal advice in relation to the proposed loan.

Can I occupy the property?

No. If a member of the SMSF occupies the property the “in-house asset rule” would be breached. However, the SMSF can buy a property that the investor intends to live in after retirement. This is possible if you transfer the property from your super fund to yourself after you retire.

I thought super funds could not borrow or charge their assets. Is this correct?

That was correct, until amendments to the Superannuation Industry (Supervision) Act 1993 (SIS Act) made in September 2007. Under the new section 67 (4A) of the SIS Act, SMSFs can borrow providing the following conditions are satisfied. The borrowed funds are used to purchase an asset (e.g. real estate) The asset is held on trust for the SMSF by another entity (ie the Property Trustee). The SMSF must have the right to acquire legal ownership of the asset by making payment. The lender’s recourse against the SMSF must be limited to the underlying asset (ie the purchased property). The lender must not have a right of recourse against other assets of the fund.

What other restrictions apply?

SMSFs must ensure that the level of investment in real property is in line with your fund’s investment strategy, including diversification of assets, liquidity, and maximisation of member returns in the fund. Although there is no prohibition on an SMSF acquiring up to 100% of the fund’s total assets in the form of real property, SMSF Trustees must ensure that the fund has sufficient diversification of assets to meet the requirements of the SIS Act.

The SMSF must also ensure that it meets the other requirements of the SIS Act such as ensuring the fund has sufficient liquidity to meet its liabilities (such as pension payments). If the fund invests 100% of its assets in real property, it is especially important that the SMSF Trustee ensures that the fund continues to meet these requirements. The government has also made it clear that super funds investing in these types of investments must have appropriate risk management measures in place and must understand the risks of investment.

Who pays what and when?

As the beneficial owner of the property and the borrower of the loan, the SMSF is responsible to pay all the usual amounts that you would expect to if you had bought an investment property and borrowed money on it in your own name rather than your super fund. For example, your SMSF will be required to pay: council rates, water rates, and land tax (if any); interest and other loan repayments; lender’s fees; repairs; property management costs; and any insurance premiums.

What happens when the loan is fully repaid? Can legal title be transferred to the SMSF? Would any stamp duty or GST be payable with respect to the transfer?

When the loan is fully repaid, the SMSF is entitled to have the legal title transferred to it. Depending on how the trust structure is set up and administered, this transfer should be possible without incurring tax, GST, or stamp duty liabilities (other than nominal). Of course, this position may change because of future changes in the law.

How can I transfer the property?

The SMSF can direct the Property Trustee to sell to any third party (subject to paying out the mortgage loan and any other amounts which might be outstanding).

Who can be the Bare Trustee?

The Bare Trustee must be a separate entity to the SMSF Trustee, however, it is permissible for the bare trustee to be a company with the members of the SMSF in their own right appointed as directors of that company. It is important that the SMSF Trustee itself is not the bare trustee because such an arrangement may breach the requirements of section 67(4A) of the SIS Act and result in the SMSF being non-compliant.