Buying Property Through an SMSF
Investing in property through a Self-Managed Super Fund (SMSF) is an increasingly popular wealth-building strategy among Australians. However, this path comes with strict superannuation, tax, and borrowing rules.
The Limited Recourse Borrowing Arrangement (LRBA) framework allows an SMSF to borrow money to purchase property — but the process is complex and highly regulated. A single documentation or timing error could result in ATO compliance issues, double stamp duty, or loan invalidation.
The Crucial Role of the Bare Trust in an LRBA
A compliant LRBA structure involves three main parties:
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The SMSF trustee (beneficial owner of the investment)
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The lender
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A Bare Trust (also called a holding trust), which temporarily holds the property on behalf of the SMSF.
The Bare Trustee, often a separate corporate trustee, is the legal owner listed on the property title and signs the mortgage documents. However, the SMSF remains the beneficial owner of the property.
Once the loan is fully repaid, the legal title is transferred from the Bare Trustee to the SMSF. This structure protects other SMSF assets: if the loan defaults, the lender’s recourse is limited only to the property held in the Bare Trust, hence the term Limited Recourse Borrowing.
Avoiding Double Stamp Duty: Timing Is Everything
One of the most common and costly mistakes in an LRBA setup is triggering double transfer duty. This typically happens when the Bare Trust Deed and Contract of Sale are executed in the wrong sequence.
Each Australian state and territory has different timing rules to qualify for concessional stamp duty treatment.
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In Queensland: The Bare Trust Deed must be dated and executed before the Contract of Sale.
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In other states: The execution may occur after the contract.
If done incorrectly, you could face two transfer duty charges — one when transferring the property to the Bare Trustee and another when transferring it to the SMSF.
💡 NB Property Law Tip: Always seek legal and financial advice before signing any documents. The order of execution differs across jurisdictions, and errors can be extremely costly.
Understanding the ‘Single Acquirable Asset’ Rule
Under LRBA laws, borrowed funds can only be used to buy a single acquirable asset — or a group of identical assets with the same market value.
This means one title per loan unless the titles are inseparable.
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Allowed: An apartment and its separately titled car park (if they cannot be sold separately).
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Not allowed: A house on one title and an adjacent vacant lot on another, even if purchased together.
Each land parcel generally requires its own LRBA, so proper structuring and legal advice are critical before purchase.
What You Can and Cannot Do With Borrowed Funds
The ATO strictly limits how LRBA funds can be used. Borrowed money can only be used to acquire, maintain, or repair an asset — not to improve it.
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Maintenance or Repair (Allowed): Repainting, fixing a roof, or replacing a damaged fence.
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Improvement (Not Allowed): Adding a new extension, pool, or any structural alteration that changes the property’s nature.
Using LRBA funds for improvements breaches superannuation law, which could render your entire SMSF non-compliant — a costly and time-consuming mistake.
Why Professional Guidance Matters
Setting up an LRBA correctly requires collaboration between lawyers, accountants, and lenders. Even a small oversight can trigger:
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ATO penalties
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Double stamp duty
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Invalidation of the loan or Bare Trust
At NB Property Law, our team ensures every step — from trust deed execution to contract review — is compliant and properly documented. We liaise with your accountant and lender to streamline the entire process.
Buying property through an SMSF under an LRBA can be a powerful investment strategy, but precision is everything. The ATO takes non-compliance seriously, and penalties can be severe.
Secure Your SMSF Property Investment with Confidence
If you’re considering buying property through your SMSF, don’t take chances with compliance. Let NB Property Law guide you through the LRBA process safely and efficiently.
Contact NB Property Law today to ensure your SMSF investment is structured correctly from the start.