Q: I am interested in setting up a self-managed fund. I would like to know more about the rules for purchasing property in a super fund, and whether it is possible to use borrowings to do so.
Trish’s response: A self-managed (DIY) super fund can invest in all types of property, including residential, commercial, industrial, and listed and unlisted property investment vehicles. There are some special rules, peculiar to super, that may affect how you use a property bought via a self-managed super fund (SMSF).
Although super funds are not permitted to directly borrow (except for two exceptions relating to share settlements and benefit payments), it is possible to purchase a property that is partly financed using personal borrowings. Another way that is becoming increasingly popular is to indirectly borrow via a limited recourse borrowing arrangement.
If anyone running a SMSF is considering investing in property and using any form of indirect borrowing, including structures that utilise personal borrowings, then advice from an accountant and/or other adviser who know about the DIY super rules is essential.
Note: If the trustees of your SMSF are considered entering a limited recourse borrowing arrangement to buy a property or any other type of asset, then ensure you follow the super rules. The ATO has also produced an excellent collection of Q and As on limited recourse borrowing arrangements: see Limited recourse borrowing arrangements by self-managed super funds – questions and answers.