Common ways to purchase property in your SMSF
There are a number of ways you can purchase property through your SMSF. I have highlighted the most common ways below;
Purchasing the property directly
This is the easiest and cheapest way to purchase a property in your SMSF. You don’t have to set up any structures or entities, the SMSF simply uses its cash to purchase the property.
Limited Recourse Borrowing Arrangement (LRBA)
This is the most complex way to purchase a property but it gives the ability for the SMSF to be able to borrow money from either a third party lender like a bank or a related party. A Bare Trust is set up to hold the property with the SMSF being the ultimate beneficiary. Once the loan is repaid the property can be transferred into the SMSF without any capital gains tax or stamp duty. It’s very important that this structure is set up correctly.
“There are a number of ways you can purchase property through your SMSF — each with different cost, complexity and compliance implications.”
Investing with another person
If your SMSF doesn’t have the cash and you don’t want to go down the LRBA route, your SMSF can purchase a property as Tenants in Common (TIC) with a related or third party. For example, if the property you want to buy is $500,000, with a TIC, you personally can provide $250k and use $250k from your super fund. All income and expenses are shared depending on the ownership percentage. Extra care needs to be given with this option as you could breach the in house assets rules.
There are advantages and disadvantages in the above I have only touched on the basics on each option. If you’re thinking about purchasing a property through your SMSF and would like some guidance please call
Martin van der Saag
Director
T: 02 9984 7774
E: martinv@nac.com.au
Cayle Petritsch
SMSF Specialist Advisor
T: 02 9984 7774
E: caylep@nac.com.au
About the author
Cayle Petritsch - Director & Wealth Advisor
Cayle Petritsch, Director and Wealth Advisor, works with our existing clients who have recognised the importance of business owners making strategic financial choices not only for their company, but for their personal finances too.
Cayle saw a great opportunity to expand North Advisory’s services into SMSF/superannuation, personal wealth management, asset protection services and other crucial personal finance facets that business owners need to consider.
His approach to wealth management allows you to receive highly personalised wealth advice. Working closely with Marius, Cayle understands the unique needs of every client, from their lifestyle and business goals to their retirement plans.
Key Takeaways
There Are Multiple Ways to Buy Property in an SMSF
Property can be acquired directly, via borrowing (LRBA), or with another party as tenants in common, each with different requirements and implications.
Direct Purchase Is the Cheapest and Easiest Option
Using the SMSF’s own cash avoids the complexity and setup costs associated with borrowing structures.
LRBAs Enable Borrowing But Are Complex
Borrowing through an LRBA lets the SMSF acquire property it otherwise couldn’t afford, but it requires a bare trust and strict compliance.
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Frequently Asked Questions
What is the simplest way for an SMSF to buy property?
The simplest method is purchasing the property directly using the SMSF’s available cash. No special structures are needed.
Can an SMSF borrow to buy property?
Yes. An SMSF can use a Limited Recourse Borrowing Arrangement (LRBA), where the fund borrows money and the property is held on trust until the loan is repaid.
What is an LRBA?
An LRBA allows the SMSF to borrow to acquire property, with legal ownership held in a bare trust for the benefit of the SMSF. The lender’s recourse is limited to the property only.
Can my SMSF buy property with someone else?
Yes. An SMSF can purchase property as tenants in common with a related or unrelated person. Income and expenses are shared according to ownership percentages.
Are there compliance risks with SMSF property purchases?
Yes. Shared ownership structures can risk breaching the in-house assets rules if not managed carefully.
Do I need a Bare Trust to buy property in my SMSF with a loan?
Yes. When purchasing property through an LRBA, a Bare Trust is required to hold the property until the loan is repaid. Once the loan is paid off, the property can be transferred into the SMSF without triggering stamp duty or capital gains tax (if structured correctly).
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