How to Buy Through an SMSF in Victoria

 
 

Buying property through a Self-Managed Superannuation Fund (SMSF) is legal in Victoria — but only if you follow strict superannuation and tax rules. If you get it wrong, the consequences can be severe, including financial penalties and having to unwind the transaction. Here’s a plain-English guide to how it works, what’s allowed, and how to stay compliant.

Can an SMSF Buy Property? Yes. An SMSF can buy residential or commercial property if:

  • The property is bought solely for investment purposes (the “sole purpose test”)

  • It is not lived in or rented by a fund member or their relatives

  • The fund has sufficient capital or can borrow through a compliant limited recourse borrowing arrangement (LRBA)

You cannot use your SMSF to buy a property for yourself or your family to live in — even temporarily.

What Types of Property Can an SMSF Buy?

  • Residential investment property — cannot be lived in or rented to related parties

  • Commercial property — can be leased to a related business at market rates (commonly used by medical or professional practices)

  • Vacant land — if developed strictly for investment (with ATO compliance)

Can an SMSF Borrow to Buy Property? Yes, but only through a properly structured LRBA. This means:

  • A separate custodian trust must hold the property on the fund’s behalf

  • The loan must be limited to the property alone

  • All costs and repayments must come from the fund

Many lenders have strict conditions, and not all banks offer SMSF loans. Commercial property loans are often easier to obtain than residential SMSF loans.

What Can Go Wrong?

  • Property used by a member or relative, breaching the sole purpose test

  • Incorrect loan structure or trustee documentation

  • Fund liquidity issues if the property is vacant

  • Lack of diversification (one asset makes up 90% of the fund)

  • Failing to get professional advice

These breaches can result in your SMSF being made non-complying by the ATO — with tax penalties of up to 45% of the fund’s assets.

What About Renovations or Subdivisions? You cannot use borrowed funds for improvements. Repairs are permitted. Major works, developments or subdivisions must be paid from fund cash and may trigger compliance issues — seek advice first.

Who Should Consider SMSF Property? Buying through an SMSF may suit:

  • Business owners wanting to buy their own premises

  • High-balance super funds (typically $200,000+)

  • Investors looking for long-term capital growth with tax benefits

It is not suitable for short-term investing, owner-occupiers, or people who plan to access super soon.

Our Role in SMSF Property Purchases At Victorian Property Settlements, we:

  • Review contracts for SMSF compliance risks

  • Ensure LRBA lender conditions are met

  • Coordinate with your accountant or financial adviser

  • Provide documents ready for auditor handover

We don’t manage super funds — but we do make sure your SMSF property purchase is safe, compliant, and structured correctly.

Want to Learn More? Click here to request a review or speak to our team.

Victorian Property Settlements – Trusted for over 25 years by Victorian buyers and sellers. Visit: www.victorianpropertysettlements.com.au