What Property Can an SMSF Invest In?

Property is one of the asset classes an SMSF may be able to invest in, but the rules around SMSF property can become complex quite quickly.

An SMSF may be able to invest in residential property, commercial property, vacant land and, in some circumstances, units in a property trust.

How the property is owned matters. So does how it is funded, who is involved and how the property will be used.

There is also an important difference between what an SMSF is legally permitted to invest in and whether a particular investment is appropriate for you. The latter is a financial advice question.

Here are some of the main SMSF compliance issues to be aware of when looking at property.

An SMSF can generally invest in residential property, provided the purchase and ongoing ownership comply with the superannuation rules.

One of the main restrictions is personal use. An SMSF property is an investment of the fund and needs to be maintained for the purpose of providing retirement benefits to its members.

It isn’t a property that members or their family can use personally.

For example, an SMSF can’t simply buy a holiday house and allow members or their family to stay there.

There are also restrictions on an SMSF acquiring residential property from a member or another related party.

It is therefore important to look at who currently owns the property, who will occupy it and how the transaction will be structured before proceeding.

There is also now an important distinction between an SMSF using its existing funds to purchase residential property and borrowing to fund the purchase. The borrowing rules changed on 10 August 2026, which we cover further below.

An SMSF may also be able to acquire commercial property.

This could include an office, warehouse, factory, shop or other business premises.

One important difference is that property which meets the definition of business real property can, in certain circumstances, be acquired by an SMSF from a related party.

Business real property may also be leased to a related business where the relevant requirements are met.

Broadly, business real property is land and buildings used wholly and exclusively in one or more businesses. There are specific rules and exceptions within that definition, so a property shouldn’t be assumed to qualify simply because it is described as commercial property.

Transactions involving related parties also need to be appropriately structured and conducted on arm’s length terms.

This is an area where the rules have recently changed.

SMSFs are generally prohibited from borrowing money, subject to limited exceptions. One of those exceptions is a complying limited recourse borrowing arrangement, usually referred to as an LRBA.

From 10 August 2026, an SMSF entering into a new LRBA to acquire real property can only use that borrowing to acquire business real property.

This doesn’t mean SMSFs can no longer borrow to buy property.

It does mean that an SMSF entering into a new LRBA generally can’t use that arrangement to buy an ordinary residential investment property that doesn’t meet the definition of business real property.

An SMSF may still be able to purchase residential investment property using its own funds, provided the investment otherwise complies with the SMSF rules.

There are also transitional rules.

Existing property LRBAs entered into before 10 August 2026 aren’t subject to the new business real property requirement and can generally continue to be maintained or refinanced.

The new rules also don’t apply where the SMSF entered into a binding contract to acquire the real property before 10 August 2026, even where settlement or the LRBA occurs after that date.

For new LRBAs from 10 August 2026, the property must meet the business real property requirement when the LRBA is entered into and continue to meet it for the life of the LRBA.

If borrowing is involved, the timing and structure of the transaction are therefore particularly important.

An SMSF doesn’t necessarily have to own property directly.

It can also be legally possible for an SMSF to acquire units in a trust that owns property.

This might arise where a property is being purchased with other investors, for example. Instead of the SMSF owning a percentage of the property itself, it owns units in the trust which owns the property.

Property unit trusts can, however, be more complex from an SMSF compliance perspective.

One of the first things to consider is whether the trust is related or unrelated to the SMSF.

Who controls the trust and who the other unitholders are can affect that position.

You also need to consider what the trust itself is doing.

For example:

The answers can affect whether the SMSF is permitted to hold the investment and whether the units could be treated as an in-house asset.

This is where additional rules can apply.

An investment by an SMSF in a related trust will generally be an in-house asset unless an exception applies.

SMSFs are generally restricted from having more than 5% of the market value of their total assets invested in in-house assets.

There is, however, an exception that can apply to certain investments in related non-geared unit trusts.

The requirements for that exception are quite strict and need to continue to be satisfied.

Borrowing within the unit trust can be an issue. So can giving a charge over an asset of the trust, acquiring certain assets from related parties and particular leasing arrangements with related parties.

This is why we wouldn’t suggest looking at a property unit trust simply on the basis that “an SMSF is allowed to invest in one”.

It may be legally possible, but the SMSF compliance outcome depends heavily on the actual structure.

A related unit trust in particular should be reviewed before the SMSF transfers funds or acquires units. A change to the trust after the investment has been made can also affect the SMSF’s compliance position.

Potentially.

A property unit trust is one way an SMSF may have an interest in property alongside other investors.

The SMSF owns units in the trust rather than directly owning the underlying property.

Who those other investors are matters.

A structure involving unrelated investors may have different SMSF compliance consequences from one involving members of the SMSF, family members, related companies or businesses controlled by them.

The percentage ownership isn’t necessarily the only consideration either. Control and the relationships between the parties can also be relevant when determining whether a trust is related to the SMSF.

This is why the full ownership structure should be understood before the SMSF invests.

It can be legally possible for an SMSF to acquire vacant land.

What the fund intends to do with the land is important.

A straightforward purchase of vacant land using the SMSF’s own money can be quite different from an arrangement involving borrowing, construction or development.

For example, the LRBA rules place restrictions around what can be done with an asset acquired using borrowed money.

Property development can also introduce issues involving related parties, builders, developers, joint ventures, borrowing and non-arm’s length dealings.

If construction or development is part of the plan, the proposed structure should be considered before the land is purchased rather than after the transaction has already occurred.

This is often where SMSF property becomes more complicated.

For example:

Is the SMSF buying something from a member?

Is a family member another investor?

Will a member’s business lease the property?

Does a related company or individual control the property trust?

Is a related party lending money or providing services to the structure?

These questions need to be considered as part of the overall arrangement.

The SMSF rules contain restrictions around acquiring assets from related parties, in-house assets, borrowing and non-arm’s length dealings.

There are exceptions, including some involving business real property and certain related non-geared unit trusts, but the particular requirements need to be satisfied.

SMSF transactions need to be conducted on an arm’s length basis.

This is particularly important where related parties are involved.

The purchase price of an asset or units, rent paid under a lease and other dealings involving the SMSF need to be considered on appropriate commercial terms.

Non-arm’s length arrangements can have both taxation and SMSF compliance consequences.

Paying market value also doesn’t, by itself, make an otherwise prohibited transaction acceptable. The underlying SMSF rules still need to be satisfied.

There isn’t one property structure that works in every situation.

Before proceeding, we would generally want to understand exactly what the SMSF is acquiring and how the proposed arrangement will work.

That includes whether the SMSF is buying property directly or acquiring units in a trust, who the other parties are, whether any of those parties are related and how the purchase will be funded.

Borrowing needs particular attention, whether it occurs within the SMSF or, in the case of some structures, within another entity.

We would also want to understand who will use the property, whether a related business is involved and whether the proposed transactions are being conducted on arm’s length terms.

The SMSF’s governing rules and the accounting, taxation and SMSF compliance implications of the proposed structure also need to be considered.

These questions are best dealt with before entering into contracts, transferring funds or acquiring units.

At Freedom Financial Solutions, we are accountants and SMSF administrators, not licensed financial advisers.

We can assist with the accounting, taxation and SMSF compliance implications of a proposed property structure and identify potential compliance issues that may need to be addressed.

We can’t advise you on whether you should invest in a particular property or property trust, whether an investment is appropriate for you, how much of your SMSF should be invested in property, or whether an investment is suitable for your retirement objectives.

Those are financial advice questions.

Depending on the proposed arrangement, you may also need advice from an appropriately qualified SMSF lawyer and/or licensed financial adviser.

We are happy to work alongside your other advisers and assist with the SMSF accounting, taxation and compliance aspects of the proposed structure.

The main thing is to get the structure looked at before proceeding. With SMSF property, particularly where borrowing, related parties or property unit trusts are involved, it can be much easier to address an issue before the transaction occurs than to try to correct it afterwards.

The information in this article is general information only and is provided for educational purposes. It is not financial product advice and should not be relied upon as a recommendation to establish an SMSF or to acquire, dispose of or hold any particular investment. Freedom Financial Solutions does not provide financial product advice. SMSF, taxation and legal requirements can be complex and the application of the rules will depend on the particular circumstances. You should obtain appropriate professional advice before proceeding with a transaction.