Self-Managed Super Funds (SMSFs) are an increasingly popular way for Australians to take control of their retirement savings.

With the flexibility to choose where and how your money is invested, SMSFs offer significant advantages—including the ability to invest in property.

If you’re based in Western Australia and are considering using your SMSF to purchase real estate, this guide explains the process, requirements, benefits, and risks in detail.

What Is an SMSF?

An SMSF is a private superannuation fund that you manage yourself, typically with up to six members. Each member is usually a trustee (or director of a corporate trustee), and all members are responsible for complying with superannuation and tax laws.

Unlike retail or industry super funds, SMSFs give you direct control over investment decisions, including shares, term deposits, managed funds, and property. However, with this control comes significant legal and financial responsibility.

Can You Use an SMSF to Invest in Property?

Yes. SMSFs are permitted to invest in property, provided the investment complies with the following rules:

• The investment must meet the Sole Purpose Test: It must solely provide retirement benefits to fund members.
• The property cannot be lived in by you or any related parties.
• The property cannot be rented to you, your family, or related parties (unless it’s a commercial property leased on market terms).
• If borrowing is involved, it must be done under a Limited Recourse Borrowing Arrangement (LRBA).

What Types of Property Can an SMSF Purchase?

1. Residential Property

• Cannot be purchased from or rented to a related party.
• Cannot be used by any SMSF member or their associates.

2. Commercial Property

• Can be purchased from a related party, provided it’s at market value.
• Can be leased to a related business (e.g., your own business) at market rent.

Setting Up an SMSF in Western Australia

Step 1: Establish the Fund

• Decide on the structure: individual trustees or a corporate trustee.
• Create a trust deed.
• Appoint trustees and declare compliance.
• Register with the ATO.

Step 2: Develop an Investment Strategy

Your SMSF must have a documented investment strategy that:

• Reflects the retirement goals of its members.
• Considers risk, diversification, liquidity, and member insurance needs.
• Supports property as a viable asset class.

Step 3: Open an SMSF Bank Account

All fund transactions must go through a separate bank account held in the fund’s name.

Step 4: Engage SMSF Professionals

Working with accountants, financial advisers, SMSF administrators, and mortgage brokers is essential to ensure full compliance and best outcomes.

Using Borrowing to Buy Property in Your SMSF

Limited Recourse Borrowing Arrangement (LRBA)

If your SMSF doesn’t have enough funds to buy property outright, it can borrow money through an LRBA. Under an LRBA:

• The loan is used to purchase a single asset (e.g., one property).
• A separate custodian trust (bare trust) holds the legal title until the loan is repaid.
• Lenders have limited recourse to the property only—not the fund’s other assets.

Loan Requirements

Most SMSF lenders will require:

• A deposit of 20% to 30%.
• Minimum net asset or super balance (usually $200,000+).
• Regular contributions into the fund.
• A corporate trustee structure.

Common SMSF Property Lenders

HR Mortgage & Finance has access to a panel of specialist SMSF lenders, including:

• Liberty Financial
• La Trobe Financial
• Bluestone Mortgages
• Thinktank
• RedZed
• Granite Home Loans

Compliance Requirements for SMSF Property

• Property must align with your investment strategy.
• Annual audits, tax returns, and financial statements are required.
• You must review your investment strategy regularly.
• Insurance must be considered for fund assets.

Advantages of Property Investment via SMSF

1. Tax Efficiency

• Rental income is taxed at 15%.
• Capital gains are taxed at 10% if the asset is held for more than 12 months.
• In pension phase, income and gains may be tax-free.

2. Control and Diversification

• You make the decisions.
• Property can diversify your fund beyond shares and cash.

3. Leasing to Your Business (for Commercial Property)

• Your business can lease a commercial property owned by your SMSF at market rent, turning rent into super contributions.

Risks and Considerations

1. Complexity and Administration

• High setup and ongoing costs.
• Requires legal, financial, and compliance expertise.

2. Liquidity

• Property is illiquid. It can be difficult to sell quickly to meet benefit payments or unexpected expenses.

3. Borrowing Risks

• LRBA repayments must be made from SMSF cash flow.
• Interest rates may be higher than standard loans.
• Regulatory restrictions limit refinancing and alterations.

4. Compliance Penalties

• The ATO can impose severe penalties for non-compliance, including tax penalties and disqualification of trustees.

Why Choose HR Mortgage & Finance for SMSF Loans?

• Access to Australia’s top SMSF property lenders.
• Specialists in SMSF loan structuring and compliance.
• Deep knowledge of WA’s property market.
• Support for both residential and commercial property.
• Islamic finance options available for SMSFs.

Whether you’re just starting or need help refinancing an existing SMSF loan, HR Mortgage & Finance can guide you from start to settlement with clarity and care.

Final Thoughts

Investing through an SMSF in Western Australia opens up new opportunities to grow your super and build long-term wealth. However, this strategy requires careful planning, compliance, and expert advice.

At HR Mortgage & Finance, we help you understand your borrowing power, navigate SMSF structures, and secure the right loan for your property investment.

Let’s make your super work smarter.