Self Managed Superannuation Funds are still actively being setup by Australians.

Self Managed Superannuation Funds, SMSF, Property

Self Managed Superannuation Funds (SMSF) are still actively being setup by Australians. But there are growing concerns that SMSF property investments are being pushed by aggressive unlicensed property spruikers who are not acting in their best interests.

For some time the Australian Securities and Investments Commission (ASIC) has warned real estate agents that they must have an Australian Financial Services Licence (AFSL) before they recommend the use of a SMSF to invest in property.  While a financial adviser is licensed under an AFSL, many unsuspecting people don’t realise many “property experts” are not licensed and are sometimes incentivised by developers to “promote” property that may not be appropriate as an SMSF investment.

Property investment has been heavily promoted to SMSF trustees since a change in superannuation legislation allowed them to borrow for investment. At present SMSFs hold around 16 per cent of their assets in direct property. [1]

Residential property has been a reliable investment for generations of Australians, but the decision to buy inside or outside super needs to be weighed up carefully. There are benefits and restrictions with each form of ownership.

Property inside super

The main benefit of buying inside a SMSF is that you can generally reduce your capital gains tax to nil if you sell your property after you retire and have converted to pension phase (depending on your specific type of fund).   If you sell earlier and have held the property for over 12 months, the effective tax rate is 10 per cent.

Of course you can’t take the proceeds out of super until you retire or start a super pension.

However, the tax benefits of negative gearing are smaller inside super where income is taxed at 15 per cent. What’s more, banks will generally lend between 60-80 per cent of the purchase price (depending on the specific property), and will generally charge higher rates of interest than those on offer outside super. [2]  You also need to meet special rules and have a specific trust in place to purchase the asset in the first place – oh and don’t forget to check whether land tax will apply.

Outside super

If you buy property in your own name you may be able to borrow up to 100 per cent of the purchase price if you already have sufficient property as security. You can also sell your investment and access the cash whenever you like.

Set-up costs are generally cheaper outside super and tax deductions for interest and other investment-related costs are often greater. This is because they are made at your marginal tax rate rather than the 15 per cent super tax rate.

On the downside, when you sell the property you pay capital gains tax at your marginal tax rate.

The best outcome will depend on your personal financial circumstances and investment strategy. If you would like to discuss any the points raised in this article, please speak with us.


This document contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider you financial situation and needs before making any decisions based on this information.







Leave a Comment!

Your email address will not be published. Required fields are marked *

Related posts