Can my SMSF buy residential property?

Yes, but with two hard rules. First, the property must satisfy the sole purpose test (s62 SIS Act) — it exists solely to provide retirement benefits, not current-day use. Second, it cannot be acquired from a related party (s66) and cannot be rented to a member or relative, ever. Breach either and the ATO can tax the entire fund at 45% and disqualify the trustees.

Can my SMSF buy commercial property from me or my business?

Only if it qualifies as Business Real Property (BRP) — real estate used wholly and exclusively in one or more businesses. BRP is the one major exception to s66 and can be acquired from a related party at market value. The fund can then lease the property back to your business at arm's-length rent. This is the most common SMSF property strategy for small business owners.

Can my SMSF borrow to buy property?

Yes, via a Limited Recourse Borrowing Arrangement (LRBA). The lender's recourse is limited to the single property held in a bare trust — they can't touch any other fund asset if the loan defaults. Most major banks have exited SMSF LRBAs, so loans are now typically through specialist lenders at 6.5%–8.5% with 60–70% LVR for residential and 65%–75% for commercial.

What is a bare trust and why is it required?

Under an LRBA the property is held in a separate 'holding' or 'bare' trust, with a holding-trust trustee (usually a corporate trustee) as legal owner. The SMSF is the beneficial owner and pays the deposit, loan repayments and outgoings. Once the loan is fully repaid, legal title transfers to the SMSF. The bare trust isolates the property so the lender's recourse is limited to it alone.

Can I improve a property the SMSF bought with an LRBA?

Borrowed funds can only be used to repair and maintain — not to improve. You can fund genuine improvements from the SMSF's own cash, but the improvements cannot fundamentally change the character of the asset while the loan is in place (e.g. you can renovate a house, but you can't add a granny flat or subdivide). Once the loan is repaid, you have full flexibility again.

What rent does the SMSF have to charge?

Arm's-length market rent. The trustees must be able to demonstrate the rent is what an unrelated tenant would pay — usually by getting a written rental appraisal from a licensed real estate agent at lease commencement and at every renewal. Below-market rent to a related party (or unpaid rent) is treated as Non-Arm's Length Income (NALI) and taxed at 45%.

How is SMSF property taxed?

Rental income is taxed at 15% in accumulation phase and 0% in retirement phase. Capital gains on a property held longer than 12 months are taxed at an effective 10% in accumulation phase (15% × 2/3 discount) and 0% in retirement phase. Costs of acquisition (stamp duty, legal) form the cost base; ongoing costs (rates, insurance, interest) are deductible.

Can my SMSF develop or subdivide property?

Outright (no LRBA) — yes, subject to the sole purpose test and an investment strategy that contemplates development. With an LRBA — no, you cannot fundamentally change the character of the asset while the loan is in place. Many trustees pay out the loan before commencing a major development.

Do I have to use a corporate trustee for SMSF property?

Strongly recommended. Most LRBA lenders will only lend where the SMSF has a corporate trustee, because individual-trustee changes (e.g. a member dying) require every title to be retransferred — a costly state-by-state exercise. A corporate trustee also caps administrative penalty exposure at the company level rather than per-individual-trustee.

SMSF property guide

Self managed super fund property: the SIS Act and LRBA rules

By Tim Roff, Founder & SMSF Specialist · Updated 29 June 2026

Holding direct property inside a Self-Managed Super Fund is one of the most popular reasons Australians establish an SMSF — but it's also the area where the most expensive compliance breaches happen. This guide covers the four rules that decide whether your fund can hold a given property: the sole purpose test, the related-party prohibition, the Business Real Property exception, and the Limited Recourse Borrowing Arrangement (LRBA) framework.

EOFY Special — 50% off SMSF setup

Offer ends midnight AEST, 1 July 2026. Applies to Individual and Corporate Trustee setup fees.

00Days

00Hrs

00Min

00Sec

The four rules that decide everything

Rule 1 — Sole purpose (s62 SIS Act). The property must exist to provide retirement benefits to members, full stop. No current-day use by you, your family, or anyone else connected to the fund. A holiday house the trustees occasionally use is a textbook breach, even when paying 'market rent'.

Rule 2 — No acquiring from related parties (s66). The fund cannot buy a residential property from a member, a relative or any related entity. The single major exception is Business Real Property — real estate used wholly and exclusively in one or more businesses. BRP can be acquired from a related party at market value and is the foundation of most small-business SMSF property strategies.

Rule 3 — In-house asset cap (s71, 5%). A residential property the SMSF rents to a relative is a strict-liability breach with no 5% exemption. A Business Real Property leased to a related-party business is not an in-house asset regardless of value, provided the lease is at arm's-length market rent.

Rule 4 — Borrowing only via an LRBA (s67A/B). The fund cannot borrow money except under a Limited Recourse Borrowing Arrangement. The borrowed property must sit in a bare trust, the lender's recourse is limited to that single asset, and borrowed funds can only be used for the acquisition cost (plus repairs and maintenance) — not improvements that change the asset's character.

Sole purpose test (s62) — no current-day use of the property
No related-party acquisitions of residential property (s66)
Business Real Property is the one related-party exception
Arm's-length market rent at every lease and every renewal
Borrowing only via a Limited Recourse Borrowing Arrangement (LRBA)
Bare trust holds title until the LRBA loan is fully repaid
Borrowed funds can repair and maintain, never improve, the asset
Independent valuation at acquisition and every annual audit

Ready to set up? SMSF setup costs · Start your application · SMSF vs industry fund calculator

Frequently asked questions

Ready to set up your SMSF?

Fixed monthly fee, audit included, fully paperless.