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Everything you need to know about SMSF property loans

Published On: August 12, 2020Categories: Accounting, Support, Tips & Tricks

Super is on everyone’s minds at the moment – little surprise, given the current economic outlook. According to some reports, 2.6 million Australians have applied for early access to their super, for a total of $42 billion.

However, that isn’t the only way people have been using their super to get through tough times.

One of the advantages of an SMSF is that you have complete control over what assets your fund invests in.

Even before the pandemic and the subsequent economic downturn, Australians with SMSFs have been able to use their nest eggs in a variety of ways that those with retail and industry funds aren’t.

One of which is the ability to take out an SMSF property loan – something our SMSF accountants in Melbourne are here to explain.

Hold up: you can borrow money using your SMSF?

Yes – before you rush off to buy that new holiday home however, we recommend reading this first.

While your fund can borrow money, it can only do so under specific conditions.

According to the ATO, you will only be able to borrow money with your SMSF in a handful of situations:

Reason Duration Borrowing Cap
To pay benefits due to members or an outstanding surcharge liability  90 days   maximum  10% of   fund’s total   assets
To cover settlement of security transactions if, when you entered the transaction, you didn’t think the borrowing would not be necessary  7 days   maximum  10% of   fund’s total   assets


Thanks to a relaxation in superannuation laws however, Australians with SMSFs are now also able to use the funds for a wider range of applications – one of which is taking out SMSF property loans.

SMSF property loans: how do they work?

Since 2010, it’s become possible for Australians with SMSFs to use SMSF loans for property purchases.

If the SMSF has enough in it to cover the deposit, the remainder of the purchase price can be borrowed using a non-recourse borrowing arrangement (NRBA).

What this means is that the lender does not have any rights to any of the other assets that make up your SMSF, just the property.

To do this, a separate property trust is established to hold the property on behalf of the SMSF, which processes all income and expenses relating to the property until all loan repayments are met.

By holding the property in a trust, it’s kept separate from the rest of your SMSF, protecting the rest of your nest egg should the worst happen.

Setting up an NRBA isn’t something that can be done with a single form – it often requires considerable paperwork. Luckily, that’s something that our SMSF accountants in Melbourne can help you out with.

Borrowing criteria

SMSF funds are able to borrow from a range of different lenders, including some banks.

Just like borrowing using your SMSF, SMSF property loans still need to adhere to strict requirements in order to be accepted.

In some ways, the criteria are even stricter than applying for a loan as an individual!

As a general rule, most institutions won’t lend unless you have an SMSF balance of $200,000 or more.

Additionally, your SMSF must be able to demonstrate its ability to to pay off your loan repayments, either through returns generated, rental income on the property after the loan is approved, or through contributions made by SMSF beneficiaries.

Ongoing compliance

Getting approved for your SMSF property loan is just the first step – once you’re approved, your SMSF will need to take steps to ensure that it’s complying not only with the terms of the loan, but also superannuation laws.

All assets in a super fund need to be valued at market value based on verifiable and objective data. The value of the property you’ve bought using your SMSF property loan is no exception.

That isn’t the only compliance measure you’ll need to take, however.

SMSF accountants in Melbourne

How SMSF property loans affect your tax situation

It’s August, and that means that many of us are in the middle of filling out our annual tax returns. What you may not know is that any SMSF property loans you may have taken out could influence your taxes!

Many Australians take out SMSF loans for property in order to get into the rental market. 

While most look into homes as investment properties, a sizable portion get into the commercial property market.

Rental income from commercial properties in particular are treated like they are under any other business venture.

Specifically, if it brings in more than $75,000  per annum, it will need to register for GST (though this also allows you to claim GST credits on property-related expenses, so it isn’t all bad news for you!)

Finally, you’ll still have to pay capital gains tax (CGT) if you decide to sell the property, as well as pay the standard 15% tax rate on rental income.

Get the right help to ensure you’re still compliant

It’s a lot to take in – and as the trustee of your SMSF, each of these compliance responsibilities is on your plate.

Of course, you’re a busy person – you aren’t retired just yet!

The amount of time compliance takes up, combined with the amount of work, means that you might not be able to personally ensure you’re keeping up with compliance requirements.

That’s where our SMSF accountants come into the picture.

In addition to setting up your fund, our personal accountants also administer it for you, ensuring that it’s fully compliant with superannuation laws and tax obligations, and ensuring that you’re able to repay any SMSF property loans you may have taken out.

Secure your future with our SMSF accountants in Melbourne

Whether you’re thinking of changing over from your previous superannuation setup to a self-managed super fund or simply need someone to look after all the administrative work that comes with running your own super, our SMSF accountants in Melbourne can help.

From set-up, to reporting, to ongoing compliance, our team of personal accountants are here to make sure your SMSF strategy is working, and that your super fund is setting you up for retirement.

Our mission is simple: to help you get to where you want to be. Since 1966, we’ve been helping Melburnians achieve their dreams, whether it’s an early retirement or specific personal and business goals.

Get in touch with an accountant in Melbourne today – call our SMSF specialists on (03) 9589 5488, or click here to book an appointment.

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