SMSF Lending Rules Explained: What First-Time Buyers Need to Know

Thinking about using your super to buy property through a Self-Managed Super Fund (SMSF)? You’re not alone. With rising property prices and more Aussies looking for control over their retirement savings, SMSF lending is gaining serious traction — especially among first-time buyers eyeing investment property.

But SMSF loans come with strict compliance rules. Getting it wrong could land your fund in hot water with the Australian Taxation Office (ATO). That’s why it’s essential to understand how SMSF lending works, from Limited Recourse Borrowing Arrangements to property expenses and fund structuring.

In this guide, we’ll explain what every first-time buyer needs to know before they borrow money through an SMSF.

What is SMSF Lending?

SMSF lending refers to when a Self-Managed Super Fund uses borrowed funds to buy property — usually under a structure called a Limited Recourse Borrowing Arrangement (LRBA). This is a type of investment loan where the lender’s claim is limited to the property purchased, protecting your fund assets.

Under superannuation laws, your SMSF must hold the property in a bare trust until the loan is repaid. Once repaid, the title transfers to the SMSF.

Can You Use an SMSF Home Loan to Buy Property?

Yes, but only under very specific conditions.

The SMSF can only purchase property that is:

• A single acquirable asset (or group of identical assets)
• Held for retirement benefits and aligned with the fund’s investment strategy
• Not lived in or used by fund members or their relatives
• Purchased using a loan that complies with SMSF lending rules

If you’re considering residential property or commercial property, both are eligible — but the SMSF must meet strict lending criteria.

5 SMSF Lending Rules First-Time Buyers Must Know

1. You Must Use a Limited Recourse Borrowing Arrangement (LRBA)

An LRBA is required for any SMSF loan. It protects the other assets in your fund because the lender can only claim the property, not your bank account or other holdings.

2. The Property Must Be a Single Acquirable Asset

You can’t use SMSF loans to buy multi-title developments or packages. It must be a single asset (or a group of identical assets) under one title. Buying off-the-plan or bundled house-and-land packages can breach this rule.

3. No Personal Use of the Property

SMSF trustees and fund members cannot live in or rent the property. This applies to both residential and commercial property. The property must serve the sole purpose test — to generate rental income and capital growth for retirement.

4. Repairs Yes, Renovations No

You can pay for property expenses like maintenance or repairs. But don’t use borrowed funds for major improvements until the loan is fully repaid.

Allowed:

• Fixing structural issues
• Repainting or replacing carpets

Not allowed:

• Adding a room
• Subdividing land
• Changing the property's purpose

5. Loan Must Be on Commercial Terms

The Loan to Value Ratio (LVR) is typically capped at 70–80%, depending on the lender. SMSF loans must reflect market value, with interest rates and terms similar to other property loans.

Using a related-party loan with favourable terms could breach Non-Arm’s Length Income (NALI) rules and cause retirement savings to be taxed at 45%.

Common SMSF Lending Questions

How much should be in my SMSF to start?

Most lenders prefer your Self Managed Super Fund has at least $250,000 in assets and sufficient liquidity to cover stamp duty, legal fees, and property expenses.

Can I buy commercial property through an SMSF?

Yes. In fact, buying commercial property is a popular strategy for business owners who want their SMSF to own their commercial premises. It’s especially common when working with experienced finance brokers or a trusted mortgage broker.

What about setting up the structure?

You’ll need:

• A compliant trust deed
• A corporate trustee (required by most financial institutions)
• A bank account in the fund’s name
• A properly structured SMSF trust deed and bare trust

Why Seek Professional Financial Advice?

SMSF lending is high-stakes. A simple error — such as misunderstanding superannuation laws, breaching the sole purpose test, or incorrectly executing the trust deed — can trigger penalties or loan rejection.

That’s why we always recommend seeking professional financial advice and working with specialists in SMSF property lending.

Final Thoughts

Using an SMSF home loan to buy property can be a powerful strategy for growing your retirement savings — especially if you’re strategic about property selection, structuring, and compliance.

Whether you're interested in investment property, commercial real estate, or property investment generally, make sure your SMSF lending plan is bulletproof.

At Causbrooks Finance, our team works with first-time buyers, SMSF trustees, and fund members to secure lending for SMSF property investment.

Ready to Buy Property Through Your SMSF?

Book a complimentary chat with one of our SMSF lending experts today.

We’ll help you:

• Understand your fund’s borrowing capacity
• Set up the correct LRBA structure
• Navigate the ATO’s rules with confidence