Property finance inside your SMSF — without pretending it’s a normal home loan.

Residential property owned by an SMSF is generally an investment of the fund. A fund member or related party cannot simply move into it, rent it for personal use or treat it like privately owned property.

The fund must operate for the purpose of providing retirement benefits and its investments need to comply with the superannuation rules, the fund's investment strategy and relevant related-party restrictions.

SMSFs are generally restricted from borrowing, but superannuation law allows certain borrowing where the arrangement meets the limited recourse borrowing arrangement — or LRBA — rules.

In broad terms, the borrowed money is used for a permitted single acquirable asset, such as one eligible property. The property is commonly held through a separate holding trust arrangement while the loan is outstanding, and the lender's recourse is limited in the way required by the applicable structure.

Existing residential investment property held by an SMSF under a compliant LRBA can potentially be refinanced, subject to the new lender's policy, property acceptance, fund structure and documentation.

A refinance can be worth reviewing where the existing loan is no longer competitive, the lender has exited SMSF lending, the product no longer suits the fund or the trustees simply want to compare the current borrowing against available alternatives.

Commercial property is one of the areas where SMSF property ownership can look quite different from residential investment property.

If a property qualifies as business real property and the transaction complies with the relevant superannuation rules, an SMSF can potentially own the premises and lease it to a related business on genuine commercial, arm's-length terms.

Potentially, where the property genuinely qualifies as business real property and the arrangement complies with the superannuation rules.

The lease and other dealings need to be on commercial, arm's-length terms. Market rent, proper documentation and the actual use of the premises all matter.

Superannuation law generally restricts an SMSF from acquiring assets from members and related parties. Business real property is an important exception where the requirements are met and the asset is acquired at market value.

This can make certain business-premises transactions possible, but the property, business use, valuation, structure and legal requirements need to be checked before contracts are entered into.

Lenders offering SMSF property finance apply their own credit policies, and those policies can differ significantly between residential SMSF refinance and commercial SMSF property lending.

SMSF property borrowing can involve costs beyond the loan itself. Depending on the structure and transaction, this can include legal work, holding-trust establishment, accounting, audit, valuation, stamp duty, lender fees and ongoing property expenses.

The LRBA rules allow borrowed money to be used for certain acquisition costs and for maintaining or repairing the acquired asset, but borrowed funds generally cannot simply be used to improve the asset.

Renovations, redevelopment, subdivisions and structural changes therefore need careful advice before an SMSF commits to a property or borrowing strategy.

SMSF borrowing sits at the intersection of credit, superannuation law, tax, trust documentation and investment strategy.

Loan Location can help with the lending side, but you may also need appropriately licensed financial advice, legal advice and tax/accounting advice before proceeding.

SMSF lending is one of those areas where guessing is expensive. We start by understanding what the SMSF owns now, what you want it to acquire or refinance, and how the existing trustee and holding structures are set up.