What Types of Properties Can You Buy Inside Your Super?

The process of using super to buy property often feels intimidating and confusing. You’ve likely heard a dozen conflicting opinions about the types of properties you can buy inside your super. You’ve probably asked tons of questions: “ And that confusion, frankly, stops many smart Australians from ever taking the leap.As your SMSF lending specialists, we understand that frustrating lack of clarity. Buying property with super is one of the most powerful decisions you can make for your retirement, and you deserve a straightforward answer. So, we’re here to cut through the noise and provide a timely update to a previous blog on the same topic. Here’s the great news: the rules are far less restrictive than the rumours suggest! It all comes down to two main, approved property types: Residential and Commercial.

The Two Main Property Types for Your SMSF

When considering buying property with an SMSF, you must remember that the

Australian Tax Office (ATO) distinguishes property primarily by its use:

1. Residential Property (The Investment Workhorse)

The majority of SMSF property investments fall into this category. You have wide flexibility here:

Your fund can purchase houses, units, and apartments, regardless of whether they are brand-new or high-quality established property. The essential rule is that the purchase must be for investment purposes only.

The Sole Purpose Test is Non-Negotiable

That leads directly to the Sole Purpose Test, which is the absolute pillar of SMSF compliance. You, a relative, or any other related party of the fund cannot live in, holiday in, or otherwise use the property. If you do, the fund fails the test, and the penalties are severe. The property must be rented out to unrelated parties at market rates.

No Residential Purchases from Related Parties

Another key compliance point is the

itself: your SMSF absolutely cannot buy residential property from you, a family member, or a business associate—the transaction must always be at ‘arm’s length.’

Rules for Vacant Land

While your fund can technically purchase vacant land, you must have a genuine intention and sufficient funds to develop it into income-producing property within a reasonable timeframe. This process, however, gets very complicated under SMSF borrowing rules (LRBAs), so for many trustees, it’s often much simpler to buy a ready-made asset.

2. Commercial/Business Real Property (The Unique Opportunity)

This category provides a distinct advantage when buying property with an SMSF, particularly for small business owners. Commercial property includes assets like:

• Office buildings or suites

• Retail shops and storefronts

• Industrial warehouses and factories

• Medical suites
  

The key difference here is the related party exemption. An SMSF

purchase commercial property from a related party (e.g., a fund member) or lease it back to a related business, provided that all transactions—such as the purchase price and rent—are set at market rates. This makes commercial SMSF property highly appealing, as it allows you to secure your business premises through your super fund, gaining tax-effective rent and potential capital gains for retirement.

The Rural/Farm Property Exception

One area that causes significant confusion is rural or farm properties. The good news is that farmland used in a primary production business can qualify as Business Real Property (BRP). This is an immense opportunity for farming families using superannuation to buy property:

- Purchase from a Related Party:

An SMSF can acquire the farmland from a related party (like the farm owner), provided it is done at market value.

- Lease-Back Arrangement:

The SMSF can then lease the property back to the related party’s farming business, again, ensuring the lease terms and rent are strictly market-based.

- The Farmhouse Rule:

Even if the farm contains a dwelling (farmhouse) used for private purposes, the entire property can still be classified as BRP, provided the residential area does not exceed two hectares, and the main use of the whole land is clearly for the farming business.

This BRP classification is crucial because it allows farmers to achieve critical asset protection and transition their most valuable asset into the tax-effective super environment. Learn more through our blog about SMSF rural properties.

Key Property Types That Are Off-Limits

To ensure compliance, you must know what your SMSF cannot purchase. These exclusions are in place to uphold the sole purpose test and prevent the transfer of assets at non-market rates:

- Residential Property from a Related Party:

As noted above, you cannot use your SMSF to buy your own home, or a family member’s home, unless it is genuinely classified as commercial/business real property (like the farm exception above).

- Property for Personal Use:

This is worth repeating: The moment you or a relative stays in the residential property, the fund fails the sole purpose test, leading to harsh penalties.

- Overseas Property:

While not technically prohibited by legislation, most lenders will not offer a Limited Recourse Borrowing Arrangement (LRBA) for international properties. Plus, the complexities involved (taxation, legal structure, management) make it prohibitively difficult for almost all SMSF trustees. It’s an investment area best avoided for simplicity and compliance.

Funding Your SMSF Property Purchase

Whether you choose residential, commercial, or rural BRP, if your fund doesn’t have enough cash, you’ll need to comply with specific SMSF lending rules using an LRBA.

When you are buying property with super via an LRBA, remember that the lender’s recourse (their right to recover the debt) is limited only to that specific asset—not the fund’s other assets. Borrowing via LRBA also comes with many different regulations. 

The complexity of the LRBA structure means you need an SMSF lending specialist like us to ensure your loan is compliant and structured correctly from the beginning.

Your Next Steps for SMSF Property

Buying property with an SMSF remains one of the most effective strategies for long-term retirement wealth. The best approach is to identify the right property types that align with your investment strategy and, critically, seek expert advice to ensure your structure and lending meet all regulatory requirements.

Don’t let the rules intimidate you. Let’s schedule a chat and make your SMSF property dreams a reality.