SMSF loans: what your super fund can borrow to buy, and on what rules

Can an SMSF borrow to buy property?

Yes, an SMSF can still borrow to buy property, through a limited recourse borrowing arrangement [1]. The loan buys one asset, held in a separate trust, and if it goes wrong the lender can only claim that asset [1].

What a new loan can buy is narrower than it was. For a loan set up after the change took effect, real property must be business real property: land and buildings used wholly and exclusively in a business [2][3]. So a new SMSF loan can no longer buy a home or a residential investment property. Loans set up before then, and refinancing them, aren't affected [2].

Is SMSF lending being banned? What changed

SMSF lending isn't banned, but the law changed what a new SMSF loan can buy. For borrowing arrangements entered into after the change took effect, the asset a loan can buy no longer includes real property that isn't business real property. The change is now law [2].

Two things didn't change. Arrangements that existed before then aren't affected, and neither is refinancing them [2]. The ATO says it is updating its borrowing guidance to reflect the new rules [1], and this page follows the ATO's own statement of the change.

What this means for you: if you've read that an SMSF can borrow to buy a rental home, that was the old rule. For a new loan, the first question is now how the property is used, not what it costs.

What can a mortgage broker tell you about an SMSF loan?

A mortgage broker can tell you how SMSF borrowing works and which lenders would lend to your fund. Money Brain arranges the loan: which lenders will look at the fund, what they need, and how the loan is set up.

Whether to start an SMSF, whether property suits your fund, and how the tax works are licensed financial and tax advice. Those belong to your accountant or financial adviser, and we work alongside them. This page is general information about the rules and how lenders work, not advice about your fund.

What is a limited recourse borrowing arrangement?

A limited recourse borrowing arrangement, or LRBA, is the only kind of borrowing an SMSF can use to buy property, and its name describes its main rule [1]. "Limited recourse" means the lender's claim is limited to the one asset the loan bought. If the loan isn't repaid, the lender can take that asset, but not the rest of the fund [1].

The asset sits in a holding trust while the loan runs, and the fund can take legal ownership once it's repaid [1]. Who holds what is set out in the next part, and what a lender checks before it agrees is covered further down.

SMSF loan structure: who holds what?

An SMSF loan splits the arrangement between the fund, a separate holding trust and the lender, and each holds a different part of it [1]. Seen side by side, it's clear why the lender, the accountant and the fund's trustee each have their own job.

Can I use my super as security for a loan?

Under the SMSF borrowing rules, the security for a loan is the one asset the loan buys, not the rest of your super [1]. The lender's claim stops at that asset, held in its own trust, so the fund's other savings sit outside it [1]. A related unit trust can't give a charge over its assets at all [5].

Whether a fund's money can back any other kind of loan is a question for your accountant or adviser, not a lending one. If what you want is to use super toward your own first home, that's a separate scheme with its own rules: see the First Home Super Saver Scheme.

What can an SMSF loan buy?

An SMSF loan can buy one asset: a single property, or a set of identical assets with the same market value that are treated as one [1]. For a new loan, if that asset is real property, it must be business real property [2].

The loan can also pay to repair or maintain the property, but not to improve it [1].

What counts as business real property?

Business real property is land and buildings used wholly and exclusively in a business [3]. "Wholly and exclusively" is the test, so a property used partly for a business and partly for something else is one to settle with your accountant before a lender is approached.

Business real property is also an exception to the rules that stop a fund buying from, or dealing with, related parties. A fund can buy it from a related party, at market value [3].

SMSF loans for commercial property: can my fund buy my business premises?

An SMSF loan can buy commercial property if it's business real property, used wholly and exclusively in a business, and that can include your own business premises [3]. The fund pays market value [3], and it can lease the premises back to your business at market rent. Business real property is now the only real property a new SMSF loan can buy [2].

Who the trustee is, how the lease is written and how the tax works are set up with your accountant. The lending side is which lenders will lend to the fund against the premises, and on what terms.

Can I buy a house with my SMSF?

You can't buy a house with a new SMSF loan. Under the change, real property bought with a new loan must be business real property, and a home or a residential investment property isn't business real property [2][3].

A fund that bought a home under a loan set up before the change keeps it under the earlier arrangement, and can refinance it [2]. Whether a fund should hold residential property in any other way is investment advice for your adviser; this guide covers borrowing.

Can an SMSF buy property from me or a relative?

An SMSF generally can't buy assets from you or a relative, and business real property is one of the few exceptions [3]. The exceptions the ATO lists are listed securities, business real property bought at market value, and in-house assets within the 5% limit [3]. They don't usually cover a home.

What this means for you: the same fund, with the same members, can get very different answers depending on how the property is used. Business premises can be bought from your own business and leased back to it; a home can't be bought with a new loan at all.

Can my SMSF borrow from me or my company?

Yes, your SMSF can borrow from you, a family member or your own company, but the loan must match what an unrelated lender would offer [1]. The ATO requires the loan's terms and how it runs to be on an arm's-length basis, and the interest can't be more than an arm's-length rate [1].

If the terms aren't on an arm's-length basis, the tax consequences for the fund can be serious, so this one starts with your accountant. A related-party loan can later be refinanced to a commercial lender.

Can an SMSF loan pay for renovations?

An SMSF loan can pay to repair or maintain the property, but not to improve it [1].

What this means for you: if a property needs work, which parts count as repairs and which as improvements is worth settling with your accountant before the loan is set up, because the loan can't pay for an improvement.

SMSF loan deposit: how much does the fund need, and how much can it borrow?

An SMSF loan usually needs a larger deposit than a home loan, because lenders usually lend a smaller share of the property's value to a fund. That share is the LVR, the loan as a share of the property's value. Each lender sets its own LVR limit for SMSF loans, and we don't print a figure here because we haven't verified a current one at each lender's own source.

How much the fund can borrow comes from what the fund earns, its contributions and the property's rent, against the repayments. The deposit isn't the only money that matters: lenders also look for money left in the fund after the purchase.

Which banks do SMSF loans?

Fewer lenders write SMSF loans than a few years ago, and their rules differ and change, so which lenders are in the market is the first thing to check.

We don't publish a list of SMSF lenders on this page, because we haven't verified one at each lender's own source, and a list that's out of date is worse than none.

What this means for you: the lender question has two halves. Which lenders are writing SMSF loans at all, and which of those would lend against this property, to this fund. Money Brain checks both before anything goes to a lender.

Can you refinance an SMSF loan?

An existing SMSF loan can usually be refinanced to another lender, as long as the new loan still meets the borrowing rules: the same single asset, the same holding trust, and limited recourse. The rule change doesn't affect refinancing a loan set up before it, including one on a home [2].

Refinancing can lower the rate, change the term, or move a related-party loan to a commercial lender. Your accountant should confirm the new arrangement before it settles.

What does a broker cost you?

How a broker is paid, and the rule Money Brain holds against it, is set out in full on its own page: what a mortgage broker costs.

Your first move

You've read the rules. Now there's one question left: for this fund and this property, which lenders would lend, and on what terms? That depends on the trust deed, the trustee, the fund's income and how the property is used, and it's what Money Brain works out, alongside your accountant, before anything goes to a lender.

When you're ready, the closing section below is the simplest way to start.