A SMSF is a trust structure used to hold and manage superannuation funds, most typically set up with two members being husband and wife, although you can have up to four members. All members must be trustees (or directors, if there is a corporate trustee) and are responsible for all the decision making and fund compliance.

When buying property though a SMSF you must comply with the following rules:

• Must meet the ‘sole purpose test’ of solely providing retirement benefits to fund members
• Must not be acquired from a related party of a member
• Must not be lived in by a fund member or any fund members’ related parties
• Must not be rented by a fund member or any fund members’ related parties

There is an exclusion to the above in that if you are a business owner you can buy the premises inside with your SMSF and pay rent directly to your SMSF as long as it is at market rates.

Borrowing to purchase property inside your SMSF must be done using a “limited recourse borrowing arrangement” (LRBA). A LRBA is a bare trust structure that holds the property and the loan so that the lender only has recourse to the property in the SMSF that the loan is attached to and not the other assets held in the SMSF such as shares, bonds and cash. The bare trust holds legal title of the property until the loan is repaid in full and discharged, when this occurs, legal title of the property is transferred to the SMSF.

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