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Superannuation (or super) is Australia’s retirement savings system, designed to help individuals build wealth to secure their future. With the right strategies, you can do more than let your super sit in a fund—you can actively grow it through smart investments. One popular option is using your superannuation to buy an investment property. In this guide, we’ll explore the investment property superannuation rules, highlight the benefits and risks, and walk you through the steps to get started.
If you want to buy an investment property with your super, you will need a Self-Managed Super Fund (SMSF). Properties can only be bought with superannuation as investments to generate retirement benefits—not for personal use. The rise in superannuation property investment in Australia has led many individuals to explore SMSFs as a way to take control of their retirement savings and grow wealth through property.
An SMSF is a superannuation fund that you manage yourself rather than relying on retail, industry, or corporate super fund agencies. It gives you full control over how your retirement savings are invested.
However, this control comes with significant responsibilities, as you must comply with strict legal and financial regulations overseen by the Australian Taxation Office (ATO). You don't need to own a business, but the fund must be established as a legal trust. This involves the following:
You must also open a dedicated bank account in the SMSF's name to manage its finances. This account is used for receiving contributions, making investments, paying expenses, and distributing retirement benefits. It must be kept entirely separate from your personal or business finances.
You’ll then need to register the SMSF with the ATO and apply for an Australian Business Number (ABN) and Tax File Number (TFN). The SMSF must also comply with tax rules, including lodging annual tax returns and financial statements.
Rental income generated by the property is taxed at a rate of just 15% during your SMSF's accumulation phase which is significantly lower than the tax rate applied to a regular investment property.
Even better, when your SMSF enters the retirement phase, this tax can reduce to 0% on rental income and capital gains, provided the fund complies with superannuation regulations.
By understanding how to buy property with a SMSF, you can benefit from both rental income and capital growth, helping to steadily build your retirement wealth.
Unlike traditional superannuation funds, where you’re limited to pre-determined investment options, an SMSF gives you full control over property selection and purchase decisions.
Open an SMSF that complies with ATO regulations (as outlined above). Work with professionals to establish the trust deed and structure.
SMSFs can borrow to buy property using a limited recourse borrowing arrangement (LRBA), which must adhere to investment property superannuation rules set by the ATO. This ensures lenders can only claim the property in case of default.
Look for properties that offer consistent rental income and long-term growth potential.
Secure a loan through an LRBA, as SMSFs cannot borrow directly like individuals.
Regularly review and audit your SMSF. Ensure compliance with superannuation laws and property-related regulations.
A couple used their SMSF to purchase a residential property generating steady rental income. Over 10 years, the property appreciated significantly, boosting their retirement savings.
A small business owner used their SMSF to purchase an office space for their business. This not only saved on rental costs but also built equity within the fund.
These case studies are examples. Always seek professional advice to avoid compliance risks and choose properties with solid growth potential.
Yes, buying an investment property with super can be a great strategy if you aim for long-term growth and comply with all regulations. Using your SMSF for property investment allows you to diversify your super portfolio while leveraging potential tax benefits, such as lower tax rates on rental income and capital gains. However, this approach is most effective for those with a solid understanding of SMSF regulations and a long-term commitment to managing their superannuation responsibly.
No, you cannot buy a property from yourself or other related parties using your superannuation. The Sole Purpose Test, a fundamental rule for SMSFs, requires that all investments are made solely to provide retirement benefits to members. However, there is an exception: SMSFs can purchase business premises from a related party, provided the transaction is at market value.
Yes, you can use your SMSF to pay off an investment property, but only if the property was purchased through the SMSF itself. The property must meet strict rules, such as being purchased solely for investment purposes and not being lived in by members or related parties. If the SMSF took out a loan (via a limited recourse borrowing arrangement, or LRBA) to buy the property, repayments must also come from the SMSF’s funds, not your personal finances.
The 5% SMSF rule restricts SMSFs from investing more than 5% of their total assets in "in-house assets." In-house assets include loans to related parties or investments in businesses operated by SMSF members or their relatives.
If you’re ready to explore SMSF property investment, it’s important to first seek professional advice to ensure you stay compliant and make informed decisions. Visit the ATO’s SMSF page or ASIC’s Moneysmart SMSF guide for more information.
Ready to take control of your superannuation and start building wealth with property investments? Contact us today at Darcy Bookkeeping and Business Services or call us on 1300 728 875 to secure your financial future!
