Buying property through a self-managed super fund (SMSF) can be part of a long-term retirement strategy, but it is very different from a standard property purchase. SMSF property transactions are governed by strict superannuation laws, trust structures, and compliance requirements. It’s important to understand how these rules apply before entering into a contract, so let’s help you by diving into what an SMSF property purchase in NSW involves, the types of property an SMSF can buy, how borrowing must be structured, and why specialist conveyancing is essential when purchasing property through an SMSF in NSW.

What Is an SMSF Property Purchase?

An SMSF property purchase occurs when a self-managed super fund acquires real estate as part of its investment portfolio. Unlike personal property purchases, the asset is owned by the fund, not by individual members. All income generated by the property, such as rent goes into the SMSF, and all expenses, including maintenance, rates, insurance, and any loan repayments, must be paid by the SMSF.

The self-managed super fund property must be acquired and held solely to provide retirement benefits to fund members. This is known as the sole purpose test and underpins every decision made by the trustees. SMSF property purchases must also align with the fund’s investment strategy, which considers risk, diversification, liquidity, and the ability of the fund to meet ongoing obligations.

Because of these requirements, buying property through an SMSF involves additional legal documentation, trustee structures, and settlement steps that do not apply to standard conveyancing matters.

What Types of Property Can an SMSF Buy?

An SMSF can purchase both residential and commercial properties, but the rules differ depending on the type of asset.

An SMSF residential property cannot be lived in or used by a fund member or any related party. It also cannot be leased to a member or a related party, even if rent is paid at market rates. In addition, residential property cannot be acquired from a member or a related party of the fund, regardless of the price paid.

Commercial property is treated differently. In some circumstances, commercial premises owned by an SMSF can be leased to a related party, such as a member’s business, provided the lease is at market rates and structured correctly. This distinction makes it important to understand how a property is classified and how it will be used before purchase.

In all cases, the property must meet the sole purpose test and comply with SMSF property rules in Australia.

Borrowing Through an SMSF and LRBAs Explained

Superannuation funds are generally prohibited from borrowing. However, an exception exists through a limited recourse borrowing arrangement (LRBA). An LRBA allows an SMSF to borrow funds to purchase a single asset, such as a property, provided strict conditions are met.

Under an LRBA, the property is held in a separate trust, commonly referred to as a bare trust. The bare trustee holds legal title to the property, while the SMSF holds the beneficial interest. This means the SMSF is entitled to all rental income and is responsible for all property expenses and loan repayments.

The lender’s rights are limited to the property itself. Other assets of the SMSF cannot be accessed if the loan defaults. Because of this limitation, lenders often require personal guarantees from fund members or directors of the corporate trustee. These guarantees are not limited in the same way and typically require independent legal advice.

LRBAs add significant complexity to an SMSF property purchase. The structure must be established before contracts are exchanged, and errors can be difficult or impossible to unwind after settlement. This is why conveyancing for SMSFs is not a formality, but a safeguard against compliance issues that can undermine the entire transaction.

Legal and Compliance Considerations for SMSF Property

SMSF property transactions are subject to a combination of superannuation law, trust law, and property law, which makes compliance far more layered than a standard purchase. When these rules are not followed precisely, trustees can face serious consequences, including penalties and, in extreme cases, being required to sell the property.

Key considerations include ensuring the SMSF trust deed permits property investment and borrowing, correctly identifying trustees and custodians on the contract, and confirming the property is acquired from an unrelated party where required. Contracts must reflect the correct purchasing entity, whether that is the SMSF trustee or the bare trustee under an LRBA.

Ongoing compliance obligations also apply after property settlement in NSW. These include maintaining market valuations, ensuring income and expenses flow through the SMSF, and meeting audit requirements. Because SMSF property arrangements are difficult to unwind, mistakes at the contract or settlement stage can have long-term implications.

Why SMSF Property Requires Specialist Conveyancing

Conveyancing for SMSFs is not the same as a standard property transaction. It requires specialist knowledge of SMSF property rules, trust structures, and lender requirements.

An experienced SMSF conveyancer coordinates with accountants, brokers, lenders, and trustees to ensure contracts are correctly structured from the outset. This includes reviewing trust deeds, preparing or reviewing bare trust documentation, managing lender conditions, and coordinating complex settlements.

Errors in SMSF conveyancing can result in non-compliant structures that cannot be corrected without selling the property. For this reason, SMSF property purchases in NSW should always be handled by a conveyancer with specific experience in this area.

Speak to Our NSW Conveyancing Team

Buying property in NSW through an SMSF involves legal and compliance responsibilities that extend well beyond a standard purchase. Engaging a conveyancer with experience in buying property through an SMSF helps reduce risk and ensures the structure is set up correctly from the start.

At Paul Denny Conveyancing, we support clients in selling and buying property in NSW, including contract review, trustee and bare trust requirements, and settlement coordination. To learn more about the process, speak with our NSW conveyancing team to discuss your SMSF property transaction.ying property through an SMSF in NSW involves strict rules and trust structures. Learn how SMSF property purchases work and why specialist conveyancing matters.