Law Institute of Victoria Accredited Specialist

For expert legal advice, give us a call on
03 9646 0344



grey underscore

Borrowing to buy property in your superannuation fund

Superannuation is a scheme set up for the payment of individual personal benefits, pensions, or allowances on retirement, death, or as the superannuation laws allow. Predominately, it is an indefinitely continuing fund and is a provident, benefit, superannuation, or retirement fund that must comply with the sole purpose test, which essentially governs the provision of benefits for each member of the fund.  


An SMSF is a self-managed superannuation fund with one to four members who actively manage their own fund. Each member must be an individual trustee or directors of a corporate trustee. Self-management gives trustees freedom of choice and control over the fund’s investments, as long as the investments accord with the fund’s investment strategy and the sole purpose test.  


Trustees are subject to restrictions on being able to borrow money; however, since September 2007, they have been able to borrow to acquire assets on a non-recourse basis with limitations. The non-recourse loans limit the rights of the lender to recover the loan amount on default from the specific asset. In addition, the loan to acquire the asset must comply with strict criteria to maintain compliance under the superannuation laws and interpretation given by the Australian Taxation Office (“ATO”) that regulates these funds.  


Trustees must fully understand their legal obligations, take care and exercise proper due diligence in borrowing money to acquire property in their SMSF. Trustees face disqualification, civil penalties, criminal charges, and fines up to $220,000.00 if they enter arrangements not correctly structured.


Where trustees need to borrow money for the acquisition of the asset, the trustees must comply strictly with the following order and criteria:

  1. Establish the SMSF, which includes registration of corporate trustee and registration with the ATO;

  2. Establish the independent property trustee (bare trustee) who will hold legal ownership of the property, which includes registration of the corporate trustee, with the appropriate constitution;

  3. After establishing the independent property trustee, it is then appropriate to enter the contract to acquire the property. The independent property trustee will be the purchaser. It is not appropriate to rely on a nomination clause in the contract in the hope that the subsequent establishment of the independent property trustee overcomes this requirement, and

  4. Create the property trust declaration between the independent property trustees who holds legal ownership of the property for the SMSF as beneficial owner.

Trustees who fail to follow these requirements will face costly consequences; difficulties with the mortgage documentation, as lenders require strict compliance and the ATO not treating the acquisition as complying with superannuation laws.


Behan Legal can establish the correct legal structure, give advice, and assist on these issues.

For an appointment, call 03 9646 0344 .

Share by: