By Colin Lewis, Head of Strategic Advice, Fitzpatricks Advice Partners
July 2026

Australians love real estate, but less so since the May budget with the capital gains tax and negative gearing reforms.

Super funds received a ‘free kick’ from the budget being excluded from these changes, so if you’re looking to buy a property in the downturn, an SMSF is an attractive structure to use.

But to get their reforms through Parliament, the government has restricted the use of limited recourse borrowing arrangements (LRBAs).

There’s a lot to it, so consider these ten things before rushing in.

Don’t put the cart before the horse

First things first, formulate your SMSF’s investment objectives and strategy before investing your super.

Its shouldn’t be done after you invest, nor written to fit a desired investment as that’s the wrong way round.

SMSF investments must always be in accordance with this strategy, which details the fund’s exposure to each asset class, the form that exposure takes and how appropriate it is to the circumstances of fund members.

It’s not set and forget. Your fund’s investment strategy must be reviewed annually, and your auditor will want to see this done and that investments are in line with it throughout the year.

So, before any investment decision, you as trustee must, as a legal requirement, consider your fund’s actual investment strategy.

Are you putting all your eggs in one basket?

Investment diversification has been in the spotlight of the Australian Taxation Office (ATO) and, consequently, SMSF auditors for years.

Having a large percentage of a fund’s assets in a single ‘lumpy’ asset like direct property rings alarm bells.  It’s not saying an SMSF cannot invest in property, but it must be addressed in the fund’s investment strategy.

As a trustee, understand the importance of diversification before committing a large proportion of your fund to one asset. A well-diversified portfolio provides retirement income and spreads investment risk so that no single asset class dominates a fund’s risk and returns.

Careful who you buy the property from and how it’s used

An SMSF cannot acquire a property from anyone related to the fund and there are restrictions on the use of it by members and other related parties – even if they pay rent at commercial rates.

So, if you’re thinking of using the beach house, or wish to provide the kids accommodation for university, then super isn’t the structure for it.

These restrictions don’t apply to ‘business real property’; generally, land and buildings used wholly and exclusively in a business, e.g. a commercial property such as an office or factory, or land used for primary production, or a medical practitioner’s practice premises.

There’s more than one way to do it

Most people do not have enough in super to buy a property outright.

There are many ways to structure the ownership of a property in super where savings are insufficient, but the most common way to date has been borrowing via a LRBA.

From 10 August, SMSFs can only borrow via a LRBA to buy business real property when it comes to real estate.

So, if you’re wanting to buy a residential property from this date, you may need to structure ownership via a related non-geared unit trust, or as tenants-in-common. The downside with the latter is your SMSF won’t be able to acquire any more of the property going forward.

LRBAs are complex, so know the rules if buying business real property with borrowings in the future.

Have your ducks in a row

Don’t rush out and put a deposit down on a property without first having things set-up.

Trying to get the property into super, or finance it under a LRBA, after a contract is signed will be problematic and fixing things after the fact is complicated and expensive.

A property purchased with borrowings under a LRBA will be held (legally owned) in a bare trust, so you must be organised to avoid complications and double stamp duty.

Know the limitations of using borrowed money

With a LRBA, there are significant restrictions on the manner and type of modifications that can be made to a property; you cannot improve or change the nature of it. The ATO has material explaining the difference between repairs and maintenance and improvements.

Once the loan is repaid, an SMSF cannot take out another loan to fund any property improvements as a loan can only be used to acquire an asset.

When borrowing money, work out where it’s coming from

Obtaining finance may be the hardest part.

The major banks have largely exited this market with lending coming from smaller banks, non-bank financial institutions, and credit unions.

Borrowing from yourself or another related party (which is legitimate) may be an option.

Related party lending and ‘safe harbour’

A risk using a related party loan is the income, including capital gains, from the asset purchased with those funds could be deemed non-arm’s length income (NALI) and taxed at the top marginal rate.

To ensure this doesn’t happen, the terms of the loan must meet the ATO’s safe harbour guidelines or be benchmarked against a commercially available loan.

Operating within the ATO’s guidelines, which includes an interest rate currently of 9.35 per cent, provides the greatest degree of certainty that an SMSF’s income will not be deemed NALI.

With benchmarking, it is hard to satisfy the ATO in practice and should only be used as a last resort.

Total super balance (TSB) and repaying borrowings

For LRBAs commenced from 1 July 2018, your TSB will be increased by your proportion of the outstanding loan balance where the loan is from a related party, or you’ve met a condition of release, e.g. retirement.

So, before buying a property with borrowings from a related party, think about how the loan will be repaid where the inclusion of your proportion of the outstanding loan pushes your TSB above $2.1 million (at the previous 30 June); the point where you can’t make non-concessional contributions.

It may also impact catch-up concessional contributions and your fund’s method for determining its exempt current pension income.

Prepare for the unexpected

Finally, consider unforeseen events, such as the premature death of a fund member, or relationship breakdown, that may require the forced sale of the property at an inappropriate time to pay a benefit.

Investing in property remains an option for people with sufficient super, a genuine long-term horizon, and the capacity to manage an SMSF.