SMSFs can invest in both residential property and commercial property (also referred to as business real property).

However, the SMSF cannot purchase a residential property from a related party. You cannot have any dealings with a related party when investing in residential property, so you or related party cannot live in the property.

Important Information

• To invest in property, it is important to set up the SMSF first.
• Most lenders require the trustee of the SMSF to be a company.
• The SMSF receives rental income and pays for all operating expenses and loan repayments.
• When repairs and maintenance are undertaken in an investment property, these costs can be deducted in the SMSF. See these guidelines from the ATO for the difference in repairs vs. improvements.
• An SMSF itself cannot borrow money; therefore, a Bare Trust (also referred to as a Property Custodian Trust) structure is put in place to facilitate the loan.
• The Bare Trust requires a trustee. Most lenders will require the trustee of the Bare Trust to be a company (this cannot be the same company that is trustee of the SMSF).
• The only purpose of the Bare Trust and Company Trustee is to keep title over the investment property until the loan is paid off.
• The property will revert to the SMSF when the loan is repaid.
• The loan type a bank would give the SMSF is a limited recourse loan, meaning the bank does not have a recourse on the SMSF should the loan default.
• For this reason, banks usually ask for a personal guarantee over the property from Trustees.
• The maximum Loan to Valuation Ratios (LVR) is usually around 80% with residential property and 70% with commercial property when members guarantee the loans.
• When there’s a bank loan and a 60% LVR, the bank might not require guarantees from Trustees.
• The Bare Trust and Company Trustee are merely legal entities for holding the property and all transactions take place in the SMSF.
• Just Superfund charges a once-off fee to set up the Bare Trust and Company Trustee, but there is no ongoing fee payable to Just Superfund for these.

Borrowing: How to Complete the Purchase Contract

When acquiring property using a Loan, the property must be purchased in the name of the Bare Trust (also referred to as a Property Custodian Trust) Trustee Company. All Directors of the Bare Trust Trustee Company must sign the Purchase Contract. Please note that the Purchase Contract can be signed with a "subject to finance" clause. You must not put the name of your SMSF on the Purchase Contract if you are borrowing to purchase the Property.

If the Bare Trust Trustee Company Name is Smith Pty Ltd then the purchaser on your Purchase Contract will be: Smith Pty Ltd. Neither the Trustees of your SMSF or the SMSF itself should be named on the Purchase Contract when borrowing to purchase Property in your SMSF.

No Borrowing: How to Complete the Purchase Contract

When acquiring Property with no borrowing, the Property must be purchased in the name of your SMSF. The following is noted:

The Property must be purchased in the name of the Trustees as Trustee for the SMSF. All Directors of the Trustee Company or Individual Trustees must sign the Purchase Contract.

If your SMSF has Individual Trustees (eg John Smith and Emma Smith) and the SMSF Name is Smith Superannuation Fund then the purchaser on the Purchase Contract will be: John Smith and Emma Smith as trustee of the Smith Superannuation Fund. All Trustees of the SMSF must sign the Purchase Contract.

If your SMSF has a Company Trustee (eg Smith Pty Ltd) and the SMSF Name is Smith Superannuation Fund then the purchaser on the Purchase Contract will be: Smith Pty Ltd as trustee for the Smith Superannuation Fund. All Directors of the Company Trustee must sign the Purchase Contract.