Things You Must Consider Before Buying An Investment Through SMSF

In Australia, superannuation was made compulsory in 1992. Since then, self-managed superannuation funds have become highly popular among Australian investors. As per the statistics, every week, more than 1000 SMSFs get registered. If you have plans to buy an investment property through an SMSF, it can be an effective investment strategy to produce long-term wealth after retirement. 

However, like many other investments, this decision can also backfire if not planned and executed properly. For investment advice, you can seek help from a certified and experienced SMSF accountant. From this blog, you will learn different things that you need to look at before making the purchase.

How does an SMSF differ from other funds in terms of investment advantage?

In general, an SMSF offers the same tax advantages and concessions as the industry, corporate, and retail funds in the market. However, there is one significant difference. In the case of an SMSF, you will be able to own direct property and have complete control over your investment strategy.

What things should you consider when you decide to buy a property through an SMSF?

There are both advantages and disadvantages to purchasing a property through a self-managed superannuation fund. Here we discuss both.


Buying an investment property using an SMSF will provide the following key benefits.

It will be tax-effective

Your self-managed super fund will be a significant source of money after you retire. In Australia, the imposed tax rate on the income within an SMSF is 15%. Compared to that tax amount you would have paid in your personal name, this percentage is much less.

It will offer you key business benefits

An SMSF structure will allow you to purchase a commercial space to rent for your own business operations. Note that the same thing cannot be done in the case of a residential property. Even though you will need to pay according to the current rental rate for the lease, the revenue will go into your self-managed super fund rather than the account of any other individual.

Your purchasing power will increase

In the SMSF, there may be a maximum of 4 members. The total sum of the capital of all the SMSF members can be enough to increase your purchasing power, which you can use in making investments.

It will reduce CGT (Capital Gains Tax)

When a property is held inside a self-managed super fund structure, it can provide adequate tax benefits in terms of CGT. For example, when a property is held for over 12 months, the fund receives more than a 30% discount on any capital gain made upon sale. In this way, a capital gains tax liability can be brought down to up to 10%.

You will have direct control over your investment strategy

An SMSF is the only superannuation structure where you can directly own property. You will have absolute control of your investments, investment strategies, and overall portfolio diversification. 


Despite a number of benefits to purchasing an investment property with an SMSF, there are some drawbacks too. Before you proceed further, it will be important to consider them as well. Key disadvantages are as follows.

It cannot leverage personal benefits

As an investor, you have to be well aware that transactions you make through an SMSF are not suitable for your personal needs. You will not be allowed to buy an investment property for your children so that they can earn some money through your SMSF to survive.

It will reduce diversification

When the balance of a superannuation fund is smaller, a direct property can consume a larger portion of the underlying investment, thus reducing the diversification. So, investors should be well aware of the risks associated with a very customised investment strategy.

The cash flow will be affected

As an investor, you will be allowed to borrow capital to purchase property within a self-managed superannuation fund. However, if you have plans to improve the property, borrowing capital is not allowed. In that case, you will need to use existing superannuation savings. You have to make sure that your contributions and the cash levels of the SMSF are adequate to cover any cost.

Complications may arise

Because investing in SMSF can be a complex matter, one may have to pay hefty penalties if anything goes wrong. For this reason, experts always recommend seeking assistance from a professional property investment accountant who can help you operate your SMSF. Depending on your circumstances and requirements, a professional can also help you remain compliant with rules and regulations.

There will be significant setup and ongoing costs

Investing in property within the SMSF can be costly. Especially, if there is any legal recourse borrowing agreement (LBRA) attached, it can lead to higher setup costs compared to those purchased with cash. Apart from these expenses, there are also other costs associated with annual tax filing and audits that must be completed by a registered tax professional. While buying an investment property within an SMSF, the investor must keep all these factors in mind.

How to know whether a self-managed superannuation fund is a correct choice for you?

Purchasing investment property through the SMSF is indeed an effective way to remain financially stable after retirement. However, investors should understand whether their financial status suits the model. When you go for buying a property through an SMSF, the first things you should consider are

  • Capital amount of your fund,
  • Cash flow, and
  • Whether you need to borrow for making the purchase.

In an ideal situation, the super fund should be sufficiently large to support buying the property and cover additional costs that may arise later. Investors should also have a clear idea of the diversification associated with their superannuation investments.

Final Words

To conclude, superannuation investments can be highly beneficial for investors after they retire, but at the same time, it involves significant complexity. So, before you make much progress, it is advised to consult an SMSF accountant for professional guidance and investment strategies.

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