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.
A: A self-managed (DIY) super fund can invest in all types of property, including residential, commercial, industrial, and listed and unlisted property investment funds. There are some special rules, peculiar to super, that may affect how you use a property bought via a self-managed super fund.
Note: DIY super fund is a nickname for 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 (you will need to seek advice for how this can be done).
Another option relating to SMSFs and borrowing is a strategy that involves using a limited recourse borrowing arrangement, which is a form of indirect borrowing (see below).
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 SMSF rules is essential.
Note: If the trustees of your SMSF are considering entering a limited recourse borrowing arrangement to buy a property or any other type of asset, then ensure you follow the super rules.
For more information on property and super, see SuperGuide articles: