A powerful tool, carefully applied.
SMSF lending can be a powerful way to build wealth inside super, particularly for SMSF members who want direct ownership of property as part of their retirement strategy. We arrange lending for both residential investment property and commercial property within self-managed super funds.
The trade-off is complexity. SMSF lending sits at the intersection of finance, tax, superannuation law and trust structuring, with significant penalties for getting it wrong. Done well, it’s a clean way to grow super through leveraged property. Done poorly, it creates compliance problems that can take years to unwind.
We work alongside your accountant and financial adviser to structure the borrowing arrangement so the lender is comfortable, the SIS Act is satisfied, and the deal supports the fund’s investment strategy.
How SMSF lending actually works
SMSF lending has its own legal and structural framework that’s materially different from standard property lending. The key features:
Limited Recourse Borrowing
SMSFs can only borrow under a Limited Recourse Borrowing Arrangement (LRBA). The lender’s recourse is limited to the specific asset purchased with the loan; all other SMSF assets remain protected.
Single Acquirable Asset
Borrowing is typically used to acquire a single asset, usually standard commercial or residential property, which must align with the SMSF’s documented investment strategy.
Bare Trust Structure
The purchased asset is held in a separate bare trust (the property trustee) until the loan is repaid, protecting the SMSF’s other assets. The SMSF trustee is the legal borrower.
Investment Strategy Compliance
The loan and asset must adhere to the fund’s documented investment strategy, ensuring the acquisition serves the sole purpose of providing for members’ retirement benefits.
Member Guarantees
Lenders typically require guarantees from all SMSF members in their personal capacity, plus a charge over the beneficial interest in the property held by the bare trust.
Regulatory Framework
SMSF borrowing is subject to ATO guidelines and the Superannuation Industry Supervision (SIS) Act. Non-compliance can attract material penalties, so structure matters.
Residential and commercial
Both residential and commercial property are eligible within an SMSF (subject to specific rules). The two have different mechanics, different rental dynamics, and different lender appetite.
Residential property within an SMSF
Investment-grade residential property purchased through a complying SMSF, held in the bare trust structure. Rented at market rates, with all rental income flowing back to the fund.
- Cannot be acquired from a related party
- Cannot be lived in by a fund member or related party
- Cannot be rented to a fund member or related party
- Must be acquired at arm’s length, market value
- Typically up to 80% LVR for standard residential
Commercial property within an SMSF
Commercial property has an additional pathway: it can be acquired from a related party (usually the member’s own business) at market value, and leased back to that business. This is the most common SMSF property strategy for business owners.
- Can be acquired from a related party (at market)
- Can be leased to the member’s business (at market rent)
- Standard commercial LVR typically 65%
- Independent valuation required
- Lease must be on commercial arm’s-length terms
What’s allowed, what isn’t
SMSF borrowing operates under specific SIS Act constraints. Most failed SMSF borrowing arrangements aren’t about the property; they’re about getting these rules wrong.
Considering property inside your SMSF?
Bring your accountant or adviser to the first conversation. We’ll work alongside them to design the lending structure that satisfies both the bank and the SIS Act.