Residential Property in Super: What You Can and Can’t Do

More and more Australians are asking: “Can I invest in residential property through a Self-Managed Super Fund (SMSF)?” The answer is yes — but with conditions.

While SMSFs offer compelling tax benefits, asset protection, and control over your investment strategy, they are tightly regulated by the Australian Taxation Office (ATO). Getting it wrong can mean harsh penalties and tax consequences.

In this guide, we break down what you can and can’t do when it comes to residential property in super.

4 Things You Can Do with Residential Property in Super

1. Buy Property Through an SMSF

Your Self Managed Super Fund can purchase a residential investment property outright or via a Limited Recourse Borrowing Arrangement (LRBA). This allows the SMSF to borrow money while protecting other fund assets if the loan defaults.

You must ensure:

• The asset aligns with your investment strategy
• The property is held in a separate trust
• The arrangement is scheme approved

2. Hold Property for Retirement Benefits

All property investment decisions must meet the sole purpose test: providing retirement benefits to fund members. You can't buy property for personal gain or to help your kids get on the property ladder.

3. Rent to Unrelated Tenants at Market Rates

The property can generate rental income, taxed at just 15% inside super — or 0% if your SMSF is in the pension phase.

However, there are restrictions such as:

• Tenants must not be related parties (e.g. family, business partners)
• Rent must reflect market value
• Leases must follow commercial premises standards

4. Claim Concessional Tax Treatment

SMSFs offer:

• Concessional tax on capital gains (10% if held over 12 months)
• Tax-free income in pension phase
• Tax-deductible ongoing costs like interest, rates, and maintenance (check with your financial planner or tax agent)

4 Things You Can’t Do with Residential Property in Super

1. Live in the Property or Use It Privately

Using SMSF property for domestic or private purposes — even temporarily — breaches the sole purpose test.

This includes:

• Living in the property
• Letting your children or associates control or occupy it
• Renting it as a holiday house

2. Buy Residential Property from a Related Party

You cannot transfer an existing residential investment property into your SMSF if it’s owned by you or a related party. The exception? Business real property, such as a commercial office, may be allowable.

3. Use Borrowed Funds for Improvements

If you’ve used an LRBA to buy the property:

• You can repair it
• You can’t substantially improve or redevelop it (e.g. build a granny flat or subdivide)

4. Ignore Compliance or Documentation

The ATO requires:

• Proper records of loan repayments, leases, market value valuations, and trustee decisions
• Proof that the property is not an in-house asset
• No present day benefit to members before retirement

Structuring Tips for SMSF Property Investment

• Use a corporate trustee structure for flexibility and succession planning.
• Avoid buying the whole property with borrowed funds unless you’ve factored in cash flow and servicing costs.
• Speak with a professional about professional standards legislation and trustee duties.
• Ensure the property sits outside your personal taxable income — it's part of the super fund, not your own assets.

How Causbrooks Finance Can Help

We specialise in guiding ambitious professionals through the process of buying property through an SMSF.

Our team helps you:

• Understand smsf borrowing rules
• Navigate the limited recourse borrowing arrangement
• Comply with the sole purpose test and ATO requirements
• Compare lenders who support SMSF property investment