By Xpress Super, Australia's premier self-managed super fund (SMSF) provider.

One of the most popular investment strategies among Australians is property investing. For many people, investing in property is a familiar and comfortable option. However “ now more than ever “ purchasing a property outright can be financially challenging.

Did you know there are multiple ways to acquire property via your SMSF? There are different structures you can use, including a Limited Recourse Borrowing Arrangement (LRBA), a Unit Trust, or a Tenants in Common arrangement. Each structure has its pros and cons, and the right one for you will depend on personal circumstances.

Limited Recourse Borrowing Arrangement (LRBA)

An SMSF is permitted to borrow from lenders like banks or from related parties, including members of the fund, to acquire a property. The property must be purchased under LRBA whereby a separate custodian trust is established to hold the property title. This structure ensures that the lender has a limited claim on the borrowing, and all other assets in the SMSF are not at risk in the event of default.

While it become increasingly harder to obtain finance through commercial lenders, some trustees are turning to the alternative of related party loans. Related parties such as members of the fund may be able to lend money to the SMSF. There are specific ATO guidelines that exist for a related party loan to ensure it on commercial terms and at market rates.

Unit Trust

A Unit Trust structure can be a viable path to co-own a property with other investors who can be related or unrelated to an SMSF. The Unit Trust would possess direct ownership of the property while the investors, including SMSFs, indirectly own the property by holding units in the Trust.

This structure provides flexibility for an SMSF to acquire more units from other unitholders in some cases, with a potential saving of stamp duty on the unit transfer. As the Unit Trust is a separate entity that has its own tax file number, a set of financial statements and annual tax returns need to be prepared and lodged with the Tax Office.

Tenants in Common

Another option to co-invest in property through an SMSF is via a Tenants in Common arrangement. An SMSF holds a fixed entitlement in a property with other investors, who can even be related parties, such as members of the Fund. Relative to Unit Trust structures, Tenants in Common arrangements do not generally require a separate set of financial statements and tax returns. The SMSF share of net income and expenses are disclosed in the tax return of the fund.

Using an SMSF to purchase property can open investment opportunities that you may not have thought possible, by utilising your assets in the superannuation environment. Consider your personal circumstances, long-term goals, and objectives in deciding the right structure for your SMSF.

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SelfWealth Ltd ABN 52 154 324 428 (Selfwealth) (Australian Financial Services Licence Number 421789). The information contained on this website is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. Taxation, legal and other matters referred to on this website are of a general nature only and should not be relied upon in place of appropriate professional advice.