The Superannuation Industry (Supervision) Act (SIS Act) sets the ground rules for your Self-Managed Superannuation Fund.  Due diligence must be taken to ensure you invest correctly and do not breach the SIS Act.  Recent changes also allow your super fund to borrow to buy property under certain arrangements. One of the main reasons for this is that an individual can increase the size of their super fund assets using leverage and so have the potential to substantially increase their final superannuation balance.

Initially, an SMSF must have an investment strategy which allows investment in direct real property, before consideration of investment into real estate. As a responsible trustee, each individual must prepare and implement an investment strategy for their SMSF as per the SIS Act. It is important to remember that an investment strategy must show the purpose behind it and how it will benefit the members of the SMSF (the sole purpose test). It is recommended that you seek a licenced SMSF Adviser or Accountant to help you set up an appropriate investment strategy.

With a SMSF you are able to have investments in several types of real property:

• commercial property, which may include a factory, warehouse, business leased premise (also known as business real property) etc. and
• residential property or real estate

Some SMSF rules and restrictions which apply ensure that you are not able to acquire a property from a person or entity related to a trustee member of your SMSF (so your super fund is not permitted to buy your own home from you). This restriction also applies to leasing the fund’s property to a person or entity related to a trustee or member of your SMSF (so you are not permitted to rent your super fund property to a family member or yourself).

However this is not completely impossible, the exception to the rule is that your SMSF is permitted to acquire from, and lease, business real property to a person or entity related to a trustee or member of your SMSF.

If gearing is involved in the purchase of a property a “holding” trust (or a custodial trust) must be set up to hold the new asset until it is no longer required as security (after the loan has been paid off). For further information on borrowing in an SMSF refer to the article on limited recourse borrowing arrangements also known as LRBA’s .