Property is the asset most people have in mind when they set up an SMSF, and it's the asset that generates most of the compliance problems we see. The rules aren't complicated once you know the handful that matter: who you buy from, who uses the property, how it's paid for, and what you do to it while the fund owns it.
This guide sets those rules out side by side for residential and commercial property, explains what changed on 10 August 2026, and shows the four ways an SMSF can hold property. It's general information. Whether property belongs in your super at all is a financial product decision, and a licensed financial adviser should make that recommendation with you. We do the accounting, tax and compliance work around it.
Can an SMSF buy residential and commercial property?
Yes. An SMSF can buy residential or commercial property in Australia, provided:
- the fund's trust deed allows it,
- it fits the fund's written investment strategy, which must consider diversification, liquidity and the members' circumstances,
- the purchase is made solely to provide retirement benefits to members (the sole purpose test in section 62 of the SIS Act),
- it isn't bought from a member or relative unless an exception applies (business real property is the main one),
- every dealing is at arm's length and at market value.
What changes between property types is not whether the fund can own it, but who can be involved with it. This is the table we walk most clients through first.
| Question | Residential property | Commercial property used in a business (business real property) |
|---|---|---|
| Can the fund buy it from an unrelated seller? | Yes | Yes |
| Can the fund buy it from you, a relative or your company? | No | Yes, at market value |
| Can you or a relative live in it or holiday in it? | No, even at full rent | Not applicable. It must be used wholly and exclusively in a business |
| Can it be leased to a related party? | Only as an in-house asset, capped at 5% of the fund (rarely workable) | Yes, under a written lease at market rent |
| Can the fund borrow to buy it with a new LRBA? | No, for loans entered into on or after 10 August 2026 (unless grandfathered) | Yes, if it is business real property when the loan starts and for its whole life |
| Can the fund buy it outright with its own money? | Yes | Yes |
| GST on rent | Residential rent is input taxed (no GST) | Commercial rent is taxable if the fund is registered or required to register for GST |
"Business real property" has a specific legal meaning: land and buildings used wholly and exclusively in one or more businesses. A shop with a flat upstairs isn't it. A farm can be, even with a house on it, within limits. Our guide to SMSF business real property covers the definition and the grey areas.
Can I live in my SMSF property, or rent it to my kids?
No. This is the rule that catches the most people, so here's why it's absolute.
- Sole purpose test. A member or relative getting a present-day benefit from a fund asset breaches it. Living in the property, staying in it for a weekend or storing your boat in the garage are all present-day benefits. Paying full rent doesn't cure it.
- In-house asset rules. A fund asset leased to a related party is an in-house asset, and in-house assets can't exceed 5% of the fund's total market value. A house is almost always far more than 5% of the fund.
- Related party purchases. The fund can't buy a residential property from you, your spouse, your children or your family trust, even at full market value.
The same applies to the other direction. You can't buy the property from the fund later to live in it unless the transaction is at market value and documented properly, and even then the fund's investment strategy and the timing need careful thought. Our guide to related parties and in-house assets explains who counts as a related party. The list is wider than most people expect.
Key point: In an SMSF, residential property is a pure investment for unrelated tenants. If anyone in the family wants to use it, ever, it doesn't belong in super.
Can an SMSF still borrow to buy property after 10 August 2026?
Only for business real property. Here is exactly what the law now says.
Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 inserted a new paragraph 67A(2)(c) into the SIS Act. From 10 August 2026, where a limited recourse borrowing arrangement (LRBA) is used to acquire real property, that property must be business real property within the meaning of section 66. The ATO released guidance on how it applies on 28 July 2026.
What it does and doesn't do:
- It restricts borrowing, not ownership. An SMSF can still buy residential property outright with its own money.
- It applies to new LRBAs entered into on or after 10 August 2026, whoever the lender is. A loan from a related party is caught just like a bank loan.
- Treat business real property as needing to stay business real property for the whole life of the loan, not just on the day it starts.
- It only covers real property. LRBAs over other assets, such as listed shares, are not affected by this change, although the usual LRBA rules still apply.
- There is no new penalty regime. A non-complying arrangement simply falls outside the LRBA exception and breaches the general ban on SMSF borrowing in section 67, with the usual consequences.
What is grandfathered
| Situation | Treatment under the new rule |
|---|---|
| LRBA entered into before 10 August 2026 over residential property | Not affected. The fund can keep it |
| Refinancing that existing LRBA (same property, same or a new lender) | Not affected |
| Binding contract to buy exchanged before 10 August 2026, settlement and loan after | Not affected, according to the ATO's guidance |
| Off-the-plan contract exchanged before 10 August 2026 | Generally not affected, but a rescinded and replaced contract may be a new arrangement |
| Contract varied after 10 August 2026 so that its fundamental terms change | May be treated as a new arrangement, and caught |
| New residential purchase with a new LRBA from 10 August 2026 | Not allowed |
Our SMSF borrowing guide covers how LRBAs work, the bare trust, related-party loans and the ATO's safe harbour terms.
Can my SMSF buy property from me or a related party?
Only if it's business real property, bought at market value. Section 66 of the SIS Act stops an SMSF acquiring assets from related parties, with a few exceptions. For property, the relevant exception is business real property. That's what lets a business owner transfer their factory or clinic into their own fund.
A transfer like this usually involves:
- an independent valuation at the time of transfer,
- stamp duty, because the land changes hands (usually at full rates; concessions are limited and vary by state),
- capital gains tax for you as the seller, which may be reduced or removed by the small business CGT concessions,
- a contribution if the fund doesn't pay the full price in cash, which counts against your contribution caps.
The numbers and the order of steps matter a great deal. The business real property guide linked above walks through a worked example.
Can an SMSF renovate or develop property?
It depends on how the work is funded and what it turns the property into.
| What you want to do | Bought outright with fund money | Held under an LRBA |
|---|---|---|
| Repairs and maintenance | Yes | Yes, and borrowed money can be used for repairs |
| Improvements (new kitchen, extension) | Yes, from fund money | Fund money only, and only if the property doesn't become a different asset |
| Knock down and rebuild, subdivide, change the use | Yes, as a long-term investment | Not while the loan is in place, because it creates a different asset |
| Build to sell for profit | Risky: may be carrying on a property development business | No |
Two traps sit across all of these.
- Related-party work at mates' rates. If you, a relative or your business does work on the fund's property for less than a market price, the income from that property and the gain when it's sold can be taxed at 45% under the non-arm's length expense rules. Our NALI and NALE guide shows how this plays out.
- Development as a business. The ATO's view, set out in SMSF Regulator's Bulletin SMSFRB 2020/1, is that development arrangements involving related parties attract close attention for sole purpose, in-house asset and arm's length breaches. Our property development tax guide covers when development profit is income rather than capital.
How is property taxed inside an SMSF?
Property is often attractive in super because of the tax rates, so it helps to see them together.
| Tax | Accumulation phase | Retirement (pension) phase |
|---|---|---|
| Net rent | 15% | 0% on the share supporting retirement-phase pensions |
| Capital gain on sale (held 12 months or more) | 15% on two-thirds of the gain, so about 10% | 0% on the share supporting retirement-phase pensions |
| Non-arm's length income | 45% | 45%. The pension exemption doesn't apply |
A few points that change the picture:
- The 2027 CGT changes don't remove the super fund discount. From 1 July 2027 the 50% CGT discount for individuals and trusts is replaced for future growth, but complying super funds keep their one-third discount. Our guide to the CGT discount changes explains what changes for property held outside super.
- Interest and costs are deductible to the fund where they relate to earning the rent. A geared property can make a loss that offsets the fund's other income, but the loss stays inside the fund.
- Division 296 can add tax on earnings for members whose total super balance is above $3 million (with a further rate above $10 million) from 2026–27.
- State taxes apply as they would to any trustee owner: stamp duty on purchase and land tax each year, at rates and thresholds that vary by state. Our state taxes service can model these for the property you're looking at.
What are the ways an SMSF can hold property?
There are four, and the right one depends on how much cash the fund has, whether the property is residential or commercial, and whether family entities want to invest alongside the fund.
| Structure | How it works | Suits | Watch out for |
|---|---|---|---|
| Outright purchase | Fund pays cash for the whole property | Larger funds, any property type | Concentration and liquidity |
| LRBA | Fund borrows; property held in a separate bare trust until the loan is paid off | Business real property only for new loans from 10 August 2026 | Single asset rule, no major works, arm's length terms |
| Regulation 13.22C unit trust | Fund and family trust or members buy units in a debt-free unit trust that owns the property | Funds that can't afford the whole property, residential or commercial | One breach (even an overdraft) ends the concession permanently |
| Tenants in common | Fund and another owner hold separate shares on the title | Simple co-ownership with no borrowing on the fund's share | Fund can't buy the other share later unless it's business real property |
The 13.22C unit trust has become more relevant since residential borrowing closed. Our full guide to Regulation 13.22C unit trusts covers the conditions and the traps.
Worked example: an SMSF buying a residential investment property
Example only, with round numbers. Say a couple's SMSF has $900,000, all in accumulation phase. They want a $750,000 apartment from an unrelated seller, to rent to unrelated tenants through an agent. Stamp duty and costs come to about $40,000 (it varies by state).
Option 1: buy outright. The fund pays $790,000 and keeps $110,000 in cash and other investments.
| Year 1 figures | Amount |
|---|---|
| Gross rent | $36,000 |
| Rates, strata, insurance, agent, land tax | ($12,000) |
| Net rent | $24,000 |
| Tax at 15% | $3,600 |
If the apartment is sold years later for a $300,000 gain, the fund pays 15% on two-thirds of it: $30,000. In pension phase, the share supporting retirement-phase pensions would be tax-free.
What to check before going ahead:
- With nearly 90% of the fund in one property, the investment strategy must deal with diversification and liquidity. An auditor will look for that.
- Can the fund still pay pensions, expenses and a death benefit if the property is vacant for six months?
- Is a $110,000 buffer enough for a special levy or a big repair?
Option 2: borrow to buy a bigger property. Not available for a new residential purchase. Before 10 August 2026, many funds would have used an LRBA here. Now a fund that can't buy outright would look at a smaller property, waiting, or a debt-free 13.22C unit trust with a family trust.
Is SMSF property worth it?
Sometimes. Here's the honest version.
It tends to work when:
- you own a business and want the business premises in your super, at market rent, with the rent building your retirement savings,
- the fund is big enough that the property doesn't swamp it,
- members are some years from retirement and the fund has other liquid assets for pensions,
- the property is a long-term hold, and nobody in the family wants to use it.
It tends to disappoint when:
- the fund is small, so one property is most of the fund and there's no buffer,
- members are close to needing pensions and the fund would have to sell to pay them,
- the plan relies on borrowing for a residential property (no longer possible for new loans),
- the real goal is a property the family will use, which super can't deliver,
- running costs (accounting, audit, valuations, legal) are large relative to the fund.
For some people a large industry or retail fund with a property option is the simpler, cheaper answer. Our SMSF vs industry fund comparison is a fair place to start, and a licensed financial adviser can make the call with you.
Mistakes we see with SMSF property
- Signing the contract in the wrong name. The contract must be in the name of the SMSF trustee (or the bare trustee, if there's a loan). Fixing the name after exchange can mean paying duty twice.
- Paying the deposit from a personal account. The fund must pay from its own bank account. A member paying it creates a contribution or a loan problem.
- Family using the property. Even a single weekend.
- Leasing commercial premises to the family business with no written lease, or at a rent nobody can support with a valuation.
- Letting rent fall into arrears for a related tenant. Unpaid rent can look like a loan to a related party.
- Using a related builder at a discount, which can make all the property's income taxable at 45%.
- Improving a property held under an LRBA in a way that makes it a different asset.
- No annual market valuation. Assets must be reported at market value each year, and the auditor will ask how you got the figure.
- Assuming the 10 August 2026 change doesn't apply to related-party loans. It does.
How BPAG helps with SMSF property
We prepare the fund's financial statements, member statements and annual return, coordinate the independent audit with an approved SMSF auditor, and monitor compliance during the year. For property specifically:
- Before you buy, we check the related party, borrowing and in-house asset rules against the actual property, tenant and seller, and model the tax inside and outside the fund. Our super and SMSF agent works through the technical questions, such as whether a mixed-use property is business real property or whether a contract is grandfathered, and your accountant checks the answer and explains it.
- Stamp duty and land tax are modelled by our state taxes agent for the state the property is in; your accountant reviews the figures.
- For a related-party lease, our CPI rent review agent runs the yearly rent review and drafts the increase notice, so the rent stays at market and is documented.
- Every year, we check rent was paid on time, expenses were paid from the fund's account and valuations are on file before the auditor sees it.
The agents draft. A qualified accountant reviews and signs off everything, and nothing goes to you, the auditor or the ATO without a person approving it. Leases, bare trust deeds and loan documents are prepared by a solicitor, and recommendations on whether to buy property in super come from a licensed financial adviser. We work alongside both.
What to send us
- The property address, contract (or draft) and how the property will be used
- Who the seller and the tenant are, and whether either is related to any member
- The fund's latest financial statements and investment strategy
- Any loan offer or term sheet
- For commercial property, the draft lease and a rent valuation
Start with our SMSF accounting and audit service, or see the SMSF guide for the rest of the rules.
Frequently asked questions
Can my SMSF buy a holiday house that we rent out most of the year?
It can buy one, but no member or relative can stay in it, even for a weekend and even at full rent. Private use breaches the sole purpose test, and a lease to a related party of a residential property is an in-house asset. In practice a holiday house only works in an SMSF if the family never uses it.
Can an SMSF buy property overseas?
The super law doesn't ban it, but it's hard to do well. The fund has to hold clear title, the investment strategy has to support it, and foreign tax, currency and enforcement issues make the accounting and audit harder. Overseas borrowing under an LRBA is also limited by the same Australian rules, so most funds that try it buy outright.
Can my SMSF buy vacant land and build on it?
Yes, an SMSF can buy land and build a property to hold as an investment, using its own money. It can't use an LRBA to fund the construction, and a project to build and sell for profit risks being treated as running a property development business. If related builders are involved, the work must be billed at market rates.
Can my SMSF buy a property with my family trust?
Not as a simple split on the title if you later want the fund to buy out the trust's share of a residential property, because the fund can't buy residential property from a related party. The usual answer is a Regulation 13.22C unit trust, where the fund and the trust both hold units and the fund can buy more units over time at market value.
Does my SMSF pay land tax?
Usually yes. Land tax is a state tax, and how an SMSF trustee is assessed (the threshold, the rates and whether any trust surcharge applies) depends on the state where the land is. Check those rules before you buy, not after the first assessment arrives.
What happens to SMSF property when a member dies?
The property stays in the fund, but the member's benefit has to be paid out, usually to a spouse, children or the estate. If the fund doesn't have enough cash, it may need to sell the property or transfer it out in specie. Plan the fund's liquidity and death benefit nominations before you buy.
Official sources
General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.