Borrowing to Purchase a Property in a SMSF

Increasing your net wealth

Recent government changes mean that in some cases Self Managed Super Fund (SMSF) trustees can borrow to purchase an asset within the fund.

Borrowing money to purchase growth assets - or those which can produce income and can grow in value over time - can have the ability to increase net wealth over time.

Previously, there were restrictions in place that prevented super funds from borrowing in this way; however, the amendment to the Superannuation Industry Supervision Act established the right of funds to borrow to invest in any asset they would otherwise be allowed to buy outright, such as property.

How does this work?

In order to facilitate your borrowings, as your SMSF is not permitted to borrow the proceeds directly from the lender, a separate trust structure (bare trust) must be established.

The trust will borrow the proceeds and purchase the investment assets. The trust will own the investment assets, and the lender will only have rights to the investment assets of the bare trust (no rights to the other assets of your SMSF).

Your SMSF will purchase units in the bare trust, and have the rights to acquire ownership of the investment assets (when appropriate). Your SMSF will receive all investment income / dividends / rent from the investments assets, make all loan repayments on your borrowings, and pay for all ongoing fees and expenses.


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