Self Managed Super Fund (SMSF) home loans are more complex than regular home loans, as any property purchased must be for the sole benefit of the SMSF, not the individual trustees.

The property must also provide a market return, that will be used to benefit the super fund members when they reach the retirement age of 65.

While you can both borrow and loan money from an SMSF for the purpose of buying property, there are many restrictions, regulations and conditions that you must meet to ensure that the purchase is legal.

If the purchase is not legal as per the Australian Taxation Office (ATO) guidelines, you may risk losing half of the assets in your SMSF, and face thousands of dollars in fines.

Find and compare SMSF home loans

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4.79%

Variable

5.33%

Freedom Lend

$1,717

Redraw facility
Offset Account
Borrow up to 65%
Extra Repayments
Interest Only
Owner Occupied

1.99

/ 5
More details

4.95%

Variable

5.38%

Liberty Financial

$1,745

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

1.23

/ 5
More details

5.29%

Variable

5.44%

Freedom Lend

$1,323

Redraw facility
Offset Account
Borrow up to 65%
Extra Repayments
Interest Only
Owner Occupied

1.99

/ 5
More details

4.99%

Variable

5.48%

Mortgage House

$1,752

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

1.65

/ 5
More details

4.99%

Variable

5.52%

Freedom Lend

$1,752

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

1.99

/ 5
More details

4.99%

Variable

5.57%

Rate Chaser Home Loans

$1,752

Redraw facility
Offset Account
Borrow up to 65%
Extra Repayments
Interest Only
Owner Occupied

1.71

/ 5
More details

5.49%

Variable

5.64%

Freedom Lend

$1,373

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

1.99

/ 5
More details

5.50%

Variable

5.68%

Regional Australia Bank

$1,842

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

1.28

/ 5
More details

5.95%

Fixed - 1 year

5.72%

Regional Australia Bank

$1,924

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

0.84

/ 5
More details

5.69%

Variable

5.76%

La Trobe Financial

$1,876

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

1.23

/ 5
More details

6.01%

Fixed - 2 years

5.78%

Regional Australia Bank

$1,935

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

0.84

/ 5
More details

5.29%

Variable

5.82%

Freedom Lend

$1,805

Redraw facility
Offset Account
Borrow up to 75%
Extra Repayments
Interest Only
Owner Occupied

1.99

/ 5
More details

6.08%

Fixed - 3 years

5.84%

Regional Australia Bank

$1,948

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

0.84

/ 5
More details

5.39%

Variable

5.97%

Rate Chaser Home Loans

$1,823

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

1.71

/ 5
More details

6.75%

Fixed - 5 years

6.23%

Regional Australia Bank

$2,073

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

0.84

/ 5
More details

6.01%

Fixed - 2 years

6.25%

LJ Hooker Home Loans

$1,935

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

0.72

/ 5
More details

6.06%

Fixed - 3 years

6.25%

LJ Hooker Home Loans

$1,944

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

0.72

/ 5
More details

6.01%

Fixed - 1 year

6.28%

LJ Hooker Home Loans

$1,935

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

0.72

/ 5
More details

6.21%

Fixed - 4 years

6.28%

LJ Hooker Home Loans

$1,972

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

0.72

/ 5
More details

6.27%

Variable

6.32%

LJ Hooker Home Loans

$1,983

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

0.72

/ 5
More details

Learn more about home loans

The ins and outs of SMSFs

Most Australians put their retirement savings into ordinary superannuation funds and let professional managers invest their money. Some, though, prefer to set up self-managed superannuation funds (SMSFs) so they can have direct control over how their money is invested.

Setting up an SMSF can be an expensive and complicated process, so it is not a decision to be taken lightly.

However, if you do take that option, you might decide to invest some of your fund’s money in property. In that case, you might decide to take out a dedicated SMSF mortgage so you can buy an investment property for your fund.

SMSF mortgages operate under different conditions from traditional mortgages. As a result, the SMSF sector contains fewer lenders offering different products at different (usually higher) rates.

For more information on SMSFs, read the FAQ below.

 

What is an SMSF?

An SMSF is a self-managed superannuation fund. SMSFs have to follow the same rules and restrictions as ordinary superannuation funds.

SMSFs allow Australians to directly invest their superannuation, rather than let ordinary funds manage their money for them.

SMSFs are regulated by the Australian Taxation Office. They can have up to four members. All members must be trustees (or directors if there is a corporate trustee).

Unlike with ordinary funds, SMSF members are responsible for meeting compliance obligations.

 

Should I get an SMSF?

Most people invest their money with traditional superannuation funds, which control about 70 per cent of Australia’s superannuation assets.

There are four main reasons why most Australians avoid SMSFs:

  • SMSFs have high set-up and running costs
  • They come with complicated compliance obligations
  • It takes a lot of time to research investment options
  • It can be difficult to make such big financial decisions

With that in mind, there are four questions people should ask themselves before taking out an SMSF:

  • Do I have enough superannuation to justify the high set-up and running costs?
  • Am I able to handle complicated compliance obligations?
  • Am I willing to spend lots of time researching investment options?
  • Do I have the skill to make big financial decisions?

It’s also worth remembering that ordinary superannuation funds usually offer discounted life insurance and disability insurance. These discounts would no longer be available if you decided to manage your own super.

 

 

How do I set up an SMSF?

Setting up an SMSF takes more work than registering with an ordinary superannuation fund.

An SMSF is a type of trust, so if you want to create an SMSF, you first have to create a trust.

To create a trust, you will need trustees, who must sign a trustee declaration. You will also need identifiable beneficiaries and assets for the fund – although these can be as little as a few dollars.

You will also need to create a trust deed, which is a document that lays out the rules of your SMSF. The trust deed must be prepared by a qualified professional and signed by all trustees.

To qualify as an Australian superannuation fund, the SMSF must meet these three criteria:

  • The fund must be established in Australia – or at least one of its assets must be located in Australia
  • The central management and control of the fund must ordinarily be in Australia
  • The fund must have active members who are Australian residents and who hold at least 50 per cent of the fund’s assets – or it must have no active members

Once your SMSF is established and all trustees have signed a trustee declaration, you have 60 days to apply for an Australian Business Number (ABN).

When completing the ABN application, you should ask for a tax file number for your fund. You should also ask for the fund to be regulated by the Australian Taxation Office – otherwise it won’t receive tax concessions.

Your next step is to open a bank account in your fund’s name. This account must be kept separated from the accounts held by the trustees and any related employers.

Your SMSF will also need an electronic service address, so it can receive contributions.

Finally, you will need to create an investment strategy, which explains how your fund will invest its money, and an exit strategy, which explains how and why it would ever close.

Please note that you can pay an adviser to set up your SMSF. You might also want to take the Self-Managed Superannuation Fund Trustee Education Program, which is a free program that has been created by CPA Australia and Chartered Accountants Australia & New Zealand.

 

What is an SMSF investment strategy?

All SMSFs are required to have an investment strategy, which should explain what assets the fund will buy and what objectives it will pursue. This strategy must be reviewed regularly.

Issues to consider include how much risk the SMSF will take, how easily its assets can be converted into cash and how it will pay out benefits.

 

What contributions can SMSFs accept?

SMSFs can accept mandated employer contributions from an employer at any time. (Funds need an electronic service address to receive the contributions.)

However, SMSFs can’t accept contributions from members who don’t have tax file numbers.

Also, they generally can’t accept assets as contributions from members and they generally can’t accept non-mandated contributions for members who are 75 or older.

 

How are SMSFs allowed to invest its funds?

SMSFs can invest in conventional assets such as shares, term deposits, managed funds and property.

SMSFs can also buy ‘collectibles’ such as artwork, jewellery, antiques, coins, stamps, vintage cars and wine – although there are special rules that apply to collectibles.

Investments must be made on an arm’s length basis, which means that assets must be bought and sold at market prices, while income must reflect the market rate of return.

As a general rule, SMSFs can’t buy assets from members or related parties.

 

How are SMSFs taxed?

Funds that follow the rules are taxed at the concessional rate of 15 per cent. Funds that don’t follow the rules are taxed at the highest marginal tax rate.

 

Can I carry on a business in an SMSF?

SMSFs are allowed to carry on a business under two conditions. First, this must be permitted under the trust deed. Second, the sole purpose of the business must be to earn retirement benefits.

What compliance obligations does an SMSF have?

SMSFs must maintain comprehensive records and submit to annual audits.

 

How do I wind up an SMSF?

There are five things you must do if you want to close your SMSF:

  • Fulfil any obligations listed in the trust deed
  • Pay out or roll over all the superannuation
  • Conduct a final audit
  • Lodge a final annual return
  • Close the fund’s bank account

What is an SMSF loan?

An SMSF loan describes money loaned or borrowed by a Self Managed Super Fund (SMSF) and its trustees. An SMSF is a superannuation fund managed by the trustees of that fund, who are also the members of that fund. 

How does an SMSF work?

Acting essentially as ‘do-it-yourself’ superannuation fund, members of an SMSF are responsible for complying with Australian superannuation and tax laws, and must make investment decisions on behalf of the fund. 

As the purpose of an SMSF is to generate returns for the trustees’ retirement, borrowing or lending money must be for the sole benefit of the SMSF, not the individual trustees. Investments must also not generate value to be enjoyed in the present day, but focus on returns for when the trustees retire.

Setting up a Self Managed Super Fund for the purpose of accessing your super early, renovating your home, or purchasing assets that benefit an individual trustee is illegal. As such, it’s important for trustees to seek professional advice from a financial adviser before setting up an SMSF.

Borrowing from an SMSF

Some people assume that an SMSF is beneficial as it can provide them with early access to funds, or empower them to use their SMSF to borrow money for personal use. 

This is inaccurate and doing so can cost you dearly. Using money from an SMSF to fund a purchase must be for the benefit of the fund, not the individual members or trustees.

When is an SMSF loan illegal?

Borrowing money from an SMSF for individual gain is illegal. If you are caught borrowing money from an SMSF for the purpose of personal benefit, the fund can be made ‘non-complying’ by the ATO. This means you can lose access to up to half of the funds in your SMSF. You can also incur serious penalties, including thousands of dollars in fines and potentially, be sentenced to time in jail.

As a rule, SMSF trustees are generally not allowed to borrow money at all, especially when they are borrowing money to benefit any related parties. These related parties can include SMSF members, friends, relatives or business associates. Trustees are also not allowed to borrow money that does not generate a market return. This is because a super fund is run for the sole purpose of providing benefits to members when they retire.

When is an SMSF loan legal?

An SMSF loan is legal when it is a Limited Recourse Borrowing Arrangement (LBRA). 

An LBRA is a loan taken out by an SMSF trustee with a third party lender, to purchase a single asset (or collection of identical assets that have the same market value) that provides investment returns to the SMSF. 

This type of SMSF loan is generally a long-term investment, to provide a market return, and is legal.

If the SMSF defaults on the LBRA, the third party lender’s rights are limited to recovering only that asset, so that the other assets owned by the SMSF remain protected.

Why do you need an LBRA for an SMSF loan?

When borrowing from an SMSF, trustees must organise an LBRA. If they do not they are breaking the ATO superannuation laws. If an auditor reports that your SMSF has borrowed money without an LBRA, you may be ordered to sell the property and your fund could be made ‘non-complying’.

There are many costs involved with selling a property, and if you borrow money without such an arrangement, you may have to sell the property for less than the SMSF paid for it. This can also result in thousands of dollars in fines for the individual trustee who set up the illegal loan.

Borrowing money with an LBRA can work, however it’s important that you follow all the rules and speak with an SMSF professional before you sign anything.

You can learn more about limited recourse borrowing arrangements from the ATO.

Can you purchase property with SMSF funds?

As long as you follow the rules, and the reason for purchasing property is to create financial returns that are funneled directly back into your SMSF, you may be able to purchase property with an SMSF loan. 

Self Managed Super Funds restrict investments that concern related parties, like members, friends and family.  This means you cannot purchase property that a related party owns or has owned. 

However, a market value purchase of business real property is a legal property purchase.

What is business real property?

Business real property generally refers to land and buildings used wholly and exclusively for business purposes. If you are purchasing business real property from SMSF finance, you must also ensure this investment meets your SMSF investment strategy to maximise the returns of the fund.

There are some exceptions to the rule that land and buildings must be wholly and exclusively used for business purposes. If, for example, you choose to purchase a rural working farm with funds from the SMSF, and there is a dwelling on the farm that is for private use, you may still be able to count this purchase as business real property.

To do this, you need to prove that the rural farm is predominantly for business use, and the dwelling must be in an area no more than two hectares.

You can learn more about business real property from the ATO. 

Can you loan money for property with funds from an SMSF?

Generally, an SMSF is not allowed to loan money, unless it is in the best interests of the fund members, and complies with your SMSF investment strategy.

An SMSF cannot under any circumstances loan money to or provide direct financial assistance to any related party, nor can the fund guarantee loans for members or their relatives.

However, an SMSF can legally loan money to an individual or business, to generate a positive return for super members.

When is a loan made by an SMSF legal?

If your SMSF is considering loaning money to an individual or business, it must be in the best interests of all fund members. It must also be for the sole purpose of generating a market return for members when they retire.

For instance, a business loan that charges interest over a 10-year period may qualify as a legal SMSF loan, as long as it matches the SMSF investment strategy and does not involve any related party.

If your fund is audited, and it is found that a loan arrangement is not in the best interests of the members of the SMSF, your fund may be labelled ‘non-complying’ by the ATO. This means the SMSF could lose up to half of its assets, and fund members could face serious penalties. 

This is why it is best to speak to a financial adviser or an SMSF professional before you draft any loan arrangements on behalf of the SMSF.