Top Strategies to Buy Investment Property with Super

Buying investment property through your self-managed super fund has changed substantially following legislative amendments that took effect in August 2026.

If you are considering using your SMSF to acquire residential property in Bella Vista or surrounding areas, the structure that previously allowed you to borrow for that purchase is no longer available for new arrangements. This change does not prevent your fund from owning residential property altogether, but it does mean that borrowing for that purpose using a limited recourse borrowing arrangement is now restricted. Commercial property that qualifies as business real property remains accessible through SMSF borrowing, and this distinction creates both limits and opportunities depending on what you intend to acquire.

What Changed with SMSF Residential Loans in August 2026

From 10 August 2026, new limited recourse borrowing arrangements can only be used to acquire property that satisfies the definition of business real property under section 66 of the Superannuation Industry (Supervision) Act. Residential property does not meet that definition. The restriction applies to new borrowing arrangements entered into after the commencement date. Existing arrangements in place before that date, along with certain eligible refinancings, are protected under transitional provisions. Whether an arrangement was legally entered into before the commencement date depends on surrounding circumstances and documentation, not just the exchange of a contract. If you signed an unconditional contract in July 2026 but settlement occurred in September, you may still qualify for transitional protection, but specialist legal advice is needed to confirm that position.

Your SMSF can still purchase residential property outright without borrowing, provided the acquisition complies with existing rules under the SIS Act. This includes ensuring the property is not acquired from a related party and is not occupied by you or a related party of a member.

How Limited Recourse Borrowing Arrangements Worked for Residential Property

Under a limited recourse borrowing arrangement, the SMSF borrows money to acquire an asset, and that asset is held in a separate bare trust until the loan is repaid. If the loan defaults, the lender's recourse is limited to the asset held in trust and does not extend to other SMSF assets. Once the loan is repaid, legal ownership transfers to the SMSF. Investment returns from the asset, including rental income, flow to the fund during the loan term.

Consider a member with $400,000 in their SMSF who wanted to purchase a residential unit in Bella Vista. Under the previous rules, the fund could have borrowed an additional amount to acquire a property, with the SMSF making loan repayments from rental income and member contributions. That structure is no longer available for new residential purchases. If the same member now wants to acquire residential property through their fund, the entire purchase price must be funded from existing SMSF balances or new contributions, subject to contribution caps.

Commercial Property Remains Accessible Through SMSF Borrowing

Limited recourse borrowing arrangements for commercial property that satisfies the definition of business real property are not affected by the 2026 restriction. Business real property means land and buildings used wholly and exclusively in one or more businesses. The business does not need to be carried on by the SMSF itself. The property must be used wholly and exclusively for business purposes at the time of acquisition, and whether it meets that definition is a question of fact.

A retail shop, warehouse, or office space leased to a commercial tenant would typically qualify. A property marketed as commercial does not automatically satisfy the definition if it is not actually used for business purposes. Mixed-use properties require careful assessment. A property with a residential component may not qualify, or may only partially qualify, depending on the specific circumstances. A concession exists for certain primary production property, but this is specific to that category and does not extend to general mixed-use situations.

Bella Vista sits within the Norwest Business Park precinct, which includes a substantial commercial real estate market. Office space, retail premises within commercial developments, and industrial warehouses in nearby areas such as Blacktown or Seven Hills may all qualify as business real property for SMSF borrowing purposes. The actual use of the property at the time of acquisition is what determines compliance, not its zoning or marketing description.

SMSF Borrowing Capacity and Deposit Requirements

Loan-to-value ratios for SMSF loans are typically more conservative than for standard residential lending. Most lenders offering SMSF property loans will lend up to 70 or 80 percent of the property value, depending on the asset type and the SMSF's financial position. This means your fund needs a deposit of at least 20 to 30 percent of the purchase price, plus settlement costs including stamp duty, legal fees, and loan establishment fees.

Borrowing capacity is assessed based on the rental income the property is expected to generate, not the personal income of SMSF members. Lenders apply a serviceability test to ensure the fund can meet loan repayments from rental income and any additional contributions. Interest rates on SMSF loans are typically higher than standard home loan rates, reflecting the different risk profile and regulatory requirements.

For commercial property, rental yields are often higher than residential yields, which can support stronger borrowing capacity. A commercial property in the Norwest precinct leased to a corporate tenant on a multi-year lease provides more stable and predictable income than a residential tenancy, and lenders assess that income accordingly.

Tax Treatment of Rental Income and Capital Gains in Accumulation Phase

Rental income received by your SMSF is taxed at the concessional rate of 15 percent during accumulation phase. Deductible expenses including loan interest, property management fees, council rates, repairs, and capital works deductions reduce the fund's assessable income. Where the property is held for at least 12 months and then sold, a one-third capital gains tax discount may apply. This produces a maximum effective rate of 10 percent on the discounted gain, though the actual tax liability depends on the property's adjusted cost base, acquisition and selling costs, capital improvements, and the fund's overall tax position for that year.

Capital losses cannot be claimed against income and can only be offset against capital gains. If your fund sells a commercial property at a loss, that loss can be carried forward to offset future capital gains but does not reduce rental income or other assessable income.

Tax Treatment When Your Fund Moves into Pension Phase

Once your SMSF commences a retirement-phase income stream, investment income from assets supporting that pension may qualify for exempt current pension income. Where the fund's assets are fully segregated as current pension assets, a capital gain on disposal of those assets is disregarded for tax purposes. Where the fund uses the proportionate method because it has both accumulation and pension interests, the exemption applies only to the exempt proportion of the net capital gain, as determined by an actuarial certificate.

The outcome depends on the method used to calculate exempt current pension income, the transfer balance cap, whether minimum pension payment requirements have been satisfied, and the fund's specific circumstances. Moving a property from accumulation to pension phase does not trigger a capital gains tax event, but the tax treatment of rental income and any future capital gain changes once the asset supports a pension.

Division 296 Tax and Large Superannuation Balances

From 1 July 2026, where a member's total superannuation balance at the end of the financial year exceeds $3 million, Division 296 tax of 15 percent applies to the proportion of earnings attributable to the amount above that threshold. Where the balance exceeds $10 million, an additional 10 percent Division 296 tax applies to earnings above that level. Both thresholds are subject to indexation in subsequent years.

For SMSF purposes, Division 296 fund earnings are an adjusted amount of the fund's taxable income. A capital gain must be realised through a CGT event for it to form part of the fund's assessable income and therefore the Division 296 earnings base. An unrealised increase in property value does not by itself produce assessable income or Division 296 fund earnings. Rental income and realised capital gains may contribute to the Division 296 calculation. LRBA amounts are disregarded when calculating a member's total superannuation balance for Division 296 tax purposes.

An SMSF may elect to adjust the cost base of its CGT assets to market value as at 30 June 2026. This election recognises accrued value prior to the commencement of Division 296 and applies to all CGT assets held directly by the SMSF at that date. The election applies only for the purpose of working out Division 296 fund earnings.

Refinancing an Existing SMSF Residential Loan

The 2026 restriction on new residential LRBAs does not apply to maintaining or refinancing a borrowing under an arrangement entered into before the commencement date. As at July 2026, the ATO had not published updated guidance on the circumstances in which a refinancing arrangement might be treated as a new LRBA under the post-commencement rules. Under the ATO's existing position, a significant change to the terms or conditions of an LRBA ends the arrangement and a new one begins. Circumstances that may end an existing arrangement include refinancing that is inconsistent with the original arrangement, borrowing to acquire an asset not contemplated under the original arrangement, and changes to the ultimate beneficiaries of the arrangement.

If your SMSF holds residential property acquired under a limited recourse borrowing arrangement before August 2026, you may be able to refinance that loan provided the refinancing does not constitute a new arrangement. Practical Compliance Guideline PCG 2016/5 sets out arm's length terms for SMSF LRBAs and remains current. The ATO publishes safe harbour interest rates for SMSF loans annually. Income from an arrangement that does not meet arm's length terms may be assessed as non-arm's length income and taxed at 45 percent.

Using SMSF Property Alongside Other Investment Strategies

An SMSF that holds commercial property can form part of a broader investment loan strategy that includes property held in your personal name or through other structures. The two are not mutually exclusive. Some members hold residential investment property personally while using their SMSF to acquire commercial property, particularly where the commercial property is related to their business and can be leased back to a related entity on arm's length terms. Business real property leased between the fund and a related party of the fund is excluded from the in-house asset rules, provided the lease is made on arm's length terms at market value.

If you operate a business in Bella Vista or the surrounding Norwest precinct, your SMSF may be able to purchase the premises from which that business operates, provided the property qualifies as business real property and the acquisition complies with related party rules. This strategy allows your business to pay rent to your super fund rather than a third party landlord, building retirement savings while maintaining control over your business premises.

Call one of our team or book an appointment at a time that works for you. We work with SMSF trustees across Bella Vista and the Hills District to structure property acquisitions that comply with current legislation and align with your long-term retirement goals.

Frequently Asked Questions