It is easy to get attracted to property investments through the self-managed super fund (SMSF). Aside from the tax benefits, there is a potential for capital gains as well as rental income from tenants. But the real question is which one you should look for, residential or commercial property?
To answer this question, this blog explores both the residential and commercial property options through SMSF, explains its borrowing rules and outlines tax benefits.
If you are looking to invest in residential properties through an SMSF, you can maximise your retirement savings and build a strong portfolio strategy. If you’re based in Western Australia, it might be helpful to speak with an SMSF Perth to understand the local market dynamics. However, these benefits come with disadvantages as well, which are discussed below:
An SMSF accountant Perth can help you optimise these tax treatments and ensure compliance.
Professional SMSF services may help in handling the administration and reducing the burden on trustees.
You may look for commercial property investment through SMSF because of its high returns and business leasing stability. If you’re considering leveraging your fund to purchase such properties, a self-managed super fund loan might be necessary. To know more, the following sections break down its pros and cons.
Besides that, a self-managed super fund home loan setup may also be harder for commercial properties due to lender requirements.
Borrowing within an SMSF is subject to the following strict rules under Australian superannuation law. These rules are made to protect your retirement savings and limit risks, specifically through the Limited Recourse Borrowing Arrangements (LRBAs).
A qualified SMSF advisor can help you interpret these borrowing rules in your fund’s context.
LRBA allows your SMSF to borrow funds for single assets such as residential and commercial properties, which are held in a separate holding trust. In this situation, the lender’s resources are limited to the asset itself, which means that other SMSF assets are protected from their activities.
As per the superannuation law, borrowing funds must only be used to acquire assets like a property or refinance an existing loan. You cannot use this amount to upgrade the property. This rule ensures that the borrowed money is solely for investment purposes.
For the SMSF, you can borrow short-term amounts of up to 10% of total assets, but you have to fulfil certain criteria. These consist of covering a payment of a benefit or a securities transaction settlement, and the loan is to be paid in less than 90 days. An SMSF auditor must confirm that such borrowings comply with ATO requirements.
If one of your SMSF members has met a condition of release, then the outstanding LRBA loan balance may be included in their TSB. This occurrence can affect the contribution caps, transfer balance cap calculations and other reporting requirements.
Taxation is one of the primary drivers that encourages trustees to use SMSFs for property investment. For this reason, it is essential to understand both the benefits and obligations you have with these tax advantages.
Here are some tax benefits you can get with an SMSF:
You may consider SMSF compliance audits to ensure you’re eligible for these benefits without breaching any rules.
SMSFs with a balance of more than A$3 million will be subject to the additional 15% on unrealised earnings, which includes property value growth even if the asset has not been sold. Moreover, the ongoing ATO compliance requirements are listed as follows:
Including SMSF estate planning as part of your structure ensures asset continuity and legal clarity for beneficiaries.
Choosing between residential and commercial property for your SMSF depends on your fund size, goals, and experience. SMSF property investment in commercial space may offer you high returns, while residential property is suitable for lower funds. To make a better choice, you should consider consulting SMSF loan experts, as they are highly aware of SMSF rules and regulations.
📌 Want to know how much income is tax-free in 2025?
👉 Read more about: Income tax threshold in Australia 2025
Whether you use an SMSF for residential or commercial property investment, each has its own benefits, such as control, tax benefits and diversification. Consider fund size, risk tolerance level, and professional assistance in accordance with the superannuation estate planning strategy to make a valuable decision.
The residential property involved in an SMSF should be solely for investment purposes. In contrast, commercial property SMSF investments can be leased to your own business with proper documentation and matching market rates.
Yes, but under Limited Recourse Borrowing Arrangement (LRBA) only. This holding guarantees that in the event of a default in the loan, the only area of risk is the acquired asset as opposed to the total assets of the fund.
The SMSF compliance audits have to take place annually, and it has to document correct valuations of assets and suitable loan arrangements. Failure to comply may result in either penalties or a disqualification of funds.
Tax benefits in SMSFs may consist of 15% tax on rental incomes when in accumulation, as well as potentially zero tax in the pension stage. But for large balances over A$3 million, additional tax can be applicable as per Division 296.
SMSF estate planning can be provided by passing the property to the beneficiaries through careful structuring. When it is combined with strategies of estate planning for superannuation funds, it gets tax-effective results and smooth asset transfer.
Copyrights © Palladium Financial Group 2025
