How to Use Your Super to Purchase a Unit in Craigmore

Buying a unit through your self-managed super fund used to be a common way to build wealth in Craigmore, but the rules changed in August.

From 10 August this year, SMSFs can no longer borrow to buy residential property, including units. This doesn't mean your super fund can't own a unit. It means you'll need to buy it outright without a loan, or look at commercial property instead. If you already have a residential SMSF loan in place, nothing changes. You can keep it, refinance it, or even sell and buy another residential property as long as you don't need to borrow again.

What Changed for SMSF Loans in August

SMSFs can still borrow under a Limited Recourse Borrowing Arrangement, but only for business real property. Residential units no longer qualify for new SMSF loans. The law changed because the government wanted to reduce investor competition in the residential market. If you exchanged a binding contract to purchase a unit before 10 August, you're protected even if settlement happens after that date. Consider someone who signed a contract in July to buy a two-bedroom unit in Craigmore and settled in September. That loan can proceed because the contract was binding before the cut-off. The same person wanting to buy a second unit now would need to pay cash or look at commercial options instead.

Buying a Commercial Unit with Your SMSF

A commercial unit can still be purchased using an SMSF loan if it meets the definition of business real property under superannuation law. The property must be used wholly and exclusively in one or more businesses. A strata-titled office, retail shopfront, or warehouse unit typically qualifies, but the deciding factor is actual use, not zoning. In Craigmore and nearby areas like Smithfield and Elizabeth, industrial units and small commercial premises sometimes come up for sale. A unit used as a mechanic's workshop or storage facility would generally meet the definition. A unit used partly for business and partly as a residence would not. The business doesn't need to be yours. Your fund can own the unit and lease it to an unrelated tenant running their own business, provided the lease is at market rent and the property remains in business use.

How the LRBA Structure Works for a Unit Purchase

The SMSF doesn't own the unit directly while the loan is active. The property is held in a separate holding trust, often called a bare trust. Your SMSF holds a beneficial interest in the unit and gains full legal ownership once the loan is repaid. If the loan defaults, the lender can only claim the unit itself, not other assets in your super fund. Rental income from the unit flows to your SMSF and is taxed at 15 percent during accumulation phase, or exempt if the fund is entirely in pension phase. You can't use borrowed money to renovate or improve the unit after purchase. The loan can cover the purchase price, stamp duty, and loan establishment costs, but any capital works need to come from the fund's existing cash or rental income.

Deposit Requirements and Loan Terms

Most lenders offering SMSF loans require a deposit of at least 30 to 35 percent of the purchase price. Some will lend up to 80 percent for commercial property, but this depends on the location, tenant strength, and lease terms. Interest rates on SMSF loans tend to sit above standard investment loans, typically 1 to 2 percent higher depending on whether you choose a variable or fixed rate. Loan terms are usually capped at 15 years for commercial property. If your fund is borrowing from a related party such as a family trust, the interest rate must meet the ATO's safe harbour rates published each year. Charging a rate below that threshold can result in rental income being taxed at 45 percent instead of 15 percent.

Tax Treatment of Rental Income and Capital Gains

Rental income received by your SMSF is taxed at 15 percent in accumulation phase. If the fund has started a pension and all assets are in pension phase, that income may be exempt. A capital gain on the sale of a unit held for at least 12 months receives a one-third discount, producing a maximum effective rate of 10 percent on the discounted gain during accumulation phase. The actual tax depends on the unit's cost base, selling costs, any capital works deductions claimed, and whether the fund has carried-forward capital losses. Where the fund is fully in pension phase and assets are segregated, the capital gain may be entirely exempt. From 1 July this year, members with a total superannuation balance over $3 million may be subject to Division 296 tax of 15 percent on earnings above that threshold. Unrealised gains don't trigger this tax, but rental income and realised capital gains on sale do.

Related Party Leasing and Sole Purpose Rules

You can lease a commercial unit owned by your SMSF to a business you control, such as your own company or partnership. This is allowed under the related party rules as long as the property qualifies as business real property and the lease is on arm's length terms at market rent. You cannot live in a residential unit owned by your SMSF, and neither can any related party. You also can't lease a residential property to yourself or a relative. The sole purpose test requires every investment in your fund to be maintained solely to provide retirement benefits. A decision that gives you or a related party a present-day benefit outside of that purpose can breach superannuation law and result in penalties or loss of the fund's tax concessions.

Refinancing an Existing SMSF Loan

If you have a residential SMSF loan that was in place before 10 August, you can refinance it to another lender without being caught by the new rules. The ATO treats refinancing as entering a new loan contract for the same asset. The refinanced loan must relate to the same unit, maintain the limited recourse structure, and meet arm's length interest rates. You can't use the refinance to borrow extra funds for renovations or to buy a different property. A significant change to the terms of the arrangement may end the existing loan and create a new one, which would then be subject to the current rules. Switching lenders or adjusting the interest rate is generally fine. Changing the asset being financed or the ultimate beneficiaries is not.

Whether an SMSF Unit Purchase Still Makes Sense

For residential units, the answer now depends on whether your fund has enough cash to buy outright. With the median unit price in Craigmore and surrounding areas, that's a substantial amount to hold in cash within a super fund. For members closer to retirement with large balances, it may still be viable. For younger members building their balance through contributions, a residential unit purchase is less practical without borrowing. Commercial units remain a live option where SMSF loans are still available. The decision comes down to whether suitable commercial property is available in your area, whether you can meet the deposit and serviceability requirements, and whether the rental yield and tenant quality justify the investment. Borrowing capacity for an SMSF loan is based on the fund's existing balance, projected contributions, and rental income from the property, not your personal income.

Call one of our team or book an appointment at a time that works for you. We work with SMSF trustees across Craigmore and the northern suburbs, and we can help you understand whether your fund is in a position to purchase a unit, what type of property qualifies, and which lenders are currently offering SMSF loans that suit your situation.

Frequently Asked Questions