What Is an SMSF Loan?
A Self-Managed Superannuation Fund (SMSF) loan allows trustees to borrow money within their fund to purchase residential or commercial property — with the potential for long-term wealth building and retirement growth. But this structure comes with strict rules and responsibilities.
If you’re considering buying property through your SMSF, it’s vital to understand the borrowing requirements, the benefits and limitations, and whether this strategy aligns with your personal financial goals.
It is important you seek advice from your trusted Financial Adviser or Accountant to determine if an SMSF loan is appropriate for your circumstances.
Why Borrow with an SMSF?
Many Australians are drawn to SMSF loans as a way to:
- Take greater control of their retirement investments.
- Use superannuation savings to invest in real estate.
- Access gearing (leverage) to increase potential returns.
- Buy a commercial property to lease back to their own business (in accordance with ATO rules).
It’s a popular strategy for small business owners, self-employed professionals, or those wanting more transparency in how their retirement funds are managed.
The Structure: Limited Recourse Borrowing Arrangement (LRBA)
When borrowing through an SMSF, the loan must be set up under a Limited Recourse Borrowing Arrangement (LRBA). This structure ensures:
- The lender’s claim is limited only to the asset purchased (not the whole SMSF).
- The asset is held in a separate holding trust until the loan is fully repaid.
- Rental income and expenses go through the SMSF.
LRBAs are strictly regulated by the Australian Taxation Office (ATO) and can only be used for specific types of investments.
Key Lending Criteria
Lending for SMSFs is different from traditional loans. Here’s what lenders typically look at:
| Criteria | What It Means |
|---|---|
| Fund Balance | Most lenders require $200,000–$250,000+ in the SMSF. |
| Serviceability | Rental income + contributions must cover loan repayments. |
| Loan-to-Value Ratio (LVR) | Typically capped at 70–80% for residential and lower for commercial. |
| Loan Type | Principal & Interest preferred, Interest-Only may be considered. |
| Documentation | Trust deeds, SMSF financials, ATO compliance records, investment strategy, property contract, and more. |
Important Considerations
- Compliance is Key
You must ensure that all investments and decisions are aligned with your SMSF’s investment strategy, trust deed, and the sole purpose test. - Property Type Matters
– Residential property must not be lived in or rented by a fund member or relative.
– Commercial property can be leased back to your own business (at market rent), which is a popular choice for professionals and small business owners. - Liquidity & Exit Strategy
Lenders want to know your SMSF has sufficient liquidity to manage other obligations — and an exit strategy in case markets change or the property underperforms. - Cost & Setup
Setting up an LRBA involves legal, accounting, and lending fees. We recommend assessing whether the long-term benefits outweigh the upfront and ongoing costs.
How We Can Help
At Taper Financial Solutions, we work closely with financial advisers, accountants, and property professionals to offer SMSF loan options that are:
- Competitive in rate and structure
- Compliant with ATO and lender requirements
- Suited to residential or commercial property
- Fully assessed in the context of your broader financial plan
While we do not provide financial advice, we are experienced in arranging lending solutions for SMSFs and can support you through every step of the application process. Want to start your property journey with your Superannuation? Book a personalised finance review today.
It is important you seek advice from your trusted Financial Adviser or Accountant to determine if an SMSF loan is appropriate for your circumstances.
FAQs For Your SMSF Loan
1. Can I live in a property purchased by my SMSF?
No. SMSF properties cannot be used by members or related parties, even as tenants.
2. How much can I borrow through my SMSF?
Most lenders allow up to 70–80% LVR for residential and less for commercial, subject to serviceability.
3. Can I use rental income to repay the loan?
Yes, rental income and super contributions are typically used to cover repayments and ongoing expenses.
4. Who should I speak to first?
Always start with your licensed financial adviser or accountant. They’ll help assess whether this is the right strategy and ensure your SMSF is structured correctly.
