5 Things to Know Before Using Your Super to Buy a House

The Rule That Changed in August

From 10 August 2026, you can only use a Limited Recourse Borrowing Arrangement through your Self-Managed Super Fund to buy business real property. Residential property that is not being used wholly and exclusively in a business no longer qualifies for SMSF loans, even if you plan to lease it out as a regular rental. If you exchanged a binding contract to acquire real property before 10 August 2026, the new rule does not apply to you, even if your LRBA was entered into after that date.

This matters for anyone in Bairnsdale considering a residential investment property through their SMSF. You cannot finance that purchase with borrowed funds through your super unless the property meets the business real property test. You can still buy residential property outright if your fund has enough cash, but the financing option is gone.

What Business Real Property Actually Means

Business real property generally means land and buildings used wholly and exclusively in one or more businesses. A shop front on Main Street leased to a tenant running a retail business qualifies. An office building leased to a local accounting firm qualifies. A standard residential house you plan to rent to a family does not, even though rental income flows to your fund.

Consider someone who owns a commercial premises in Bairnsdale through their SMSF and leases it to a café operator. The property must be business real property when the LRBA is entered into and throughout the life of the LRBA. If the tenant vacates and the owner actively seeks a new business tenant, the property does not lose its status during that period. If the owner decides instead to convert it to residential use or abandons plans to lease it commercially, the arrangement fails and compliance action may apply.

You will need to work with an SMSF mortgage broker who understands these distinctions before making any commitment.

LVR and Deposit Requirements for SMSF Property Loans

Most lenders offering SMSF loans cap the loan-to-value ratio at 70 to 80 per cent, which means you need a deposit of at least 20 to 30 per cent of the property price. That deposit comes entirely from your super balance, not from your personal savings. Your fund also needs to cover the purchase costs, including stamp duty and legal fees, from its existing balance or from incoming contributions.

In our experience, borrowing capacity under an SMSF loan is usually lower than a traditional residential loan. Lenders assess the income-producing ability of the property, not your personal income. The borrowed money must be used to acquire a single asset, or a collection of identical assets with the same market value that can be treated as a single asset. You cannot use the loan to improve the property later, and any capital improvements need to be funded from the SMSF's own cash.

For someone looking at a commercial property in Bairnsdale, the rent from a business tenant becomes the primary measure of serviceability. A vacant property or one with uncertain rental income will face significant hurdles.

How the Bare Trust and Limited Recourse Rules Work

Under an LRBA the SMSF trustee obtains a loan to purchase an acquirable asset held in a separate holding trust. The property sits in that holding trust, often called a bare trust, until the loan is repaid. Your SMSF has a beneficial interest in the property and the right to legal ownership once the debt is cleared. The lender's recourse is limited to the property itself, not to other assets in your super fund.

This structure protects the rest of your SMSF balance if something goes wrong with the property. If your fund cannot meet the loan repayments, the lender can only take the property held in the trust, not your shares, cash or other super assets. This is a key difference from a personal mortgage, where cross-collateralisation or guarantees can expose multiple assets.

The holding trust cannot be a discretionary trust or a unit trust in which the SMSF trustee is one of a number of unit holders. It must be structured correctly from the start, and any error in the trust deed can result in the entire arrangement being non-compliant.

Tax on Rental Income and Capital Gains in Your SMSF

A complying SMSF is taxed at a concessional rate of 15 per cent on its assessable income, which includes net capital gains unless the asset is a segregated current pension asset. Rental income from a commercial property held in accumulation phase is taxed at 15 per cent. If you hold the property for at least 12 months before selling, you receive a one-third discount on the capital gain, which brings the effective tax rate to 10 per cent on the discounted gain.

Once a member moves into pension phase, income and gains from assets supporting that pension can be exempt from tax, depending on how the fund is structured. Under the segregated method, income from segregated current pension assets is exempt and capital gains and losses on those assets are ignored. Not all SMSF property qualifies for full exemption, particularly where the fund supports both accumulation and pension members.

Division 296 tax applies from 1 July 2026 and is assessed to the individual. For members with a total super balance above $3 million, an additional 15 per cent tax applies to the proportion of earnings related to the balance above that threshold. A further 10 per cent applies to balances above $10 million. LRBA amounts are never included in your total super balance for Division 296 purposes, which means the outstanding loan does not push you over the threshold.

Refinancing an Existing SMSF Loan After the Rule Change

The new rule does not apply where an SMSF maintains or refinances, on or after 10 August 2026, an LRBA entered into before that date. If you took out an SMSF loan to buy a residential investment property before August, you can still refinance that loan now or in the future without needing to meet the business real property test.

A refinance means entering into a new loan contract for the same asset, with the same or a different lender. A significant change to the terms or conditions of an LRBA ends the arrangement and starts a new one. Changes that result in a new arrangement include refinancing the original borrowing or borrowing an amount inconsistent with the earlier arrangement, such as borrowing to acquire a different asset not contemplated under the original LRBA.

If you refinance an LRBA that was entered into on or after 10 August 2026, the property must still meet the business real property definition at the time of refinancing. You cannot refinance a loan on a residential property if the original loan was taken out after the rule change, because that arrangement should never have existed in the first place.

This is particularly relevant for anyone in Bairnsdale who locked in a pre-August contract but is now reviewing their loan terms. The ability to compare SMSF lenders and move to a more suitable rate remains available, provided the arrangement predates the change.

One Final Thing to Consider Before You Apply

An SMSF property loan is not a standard home loan, and it is not a typical commercial loan either. The application process takes longer, requires more documentation, and involves both your accountant and your solicitor in addition to a broker. The fund must meet the sole purpose test at all times, which means every decision about the property must be made to provide retirement benefits to members, not for any other reason.

You cannot live in a property owned by your SMSF, and you cannot rent it to yourself or a related party unless it qualifies as business real property and is leased at market rates. When property held by the holding trust is leased to a related party of the SMSF, the SMSF's interest in the holding trust is an in-house asset, unless the leased asset would not be an in-house asset if the SMSF owned it directly, such as business real property. In-house assets are capped at 5 per cent of your total fund value, and breaching that limit triggers compliance action.

If you are weighing up whether using your super to purchase a commercial property in Bairnsdale makes sense, the decision depends on your fund balance, your time horizon until retirement, and whether the property stacks up as an income-producing asset without relying on personal use or related-party arrangements. A poorly structured purchase can lock up your super in an illiquid asset and expose you to penalties.

Call one of our team or book an appointment at a time that works for you. We work with SMSF specialists and lenders who understand the current rules, and we can talk through whether this option fits your situation before you commit.

Frequently Asked Questions