Since 10 August 2026, SMSFs can no longer use a Limited Recourse Borrowing Arrangement (LRBA) to acquire residential property. Existing arrangements are grandfathered, and borrowing to acquire business real property is not affected. Co-ownership may be a solution for SMSFs without enough cash to purchase a property outright. However, keep in mind the rules are strict and there are many traps you can fall into.
You and your self-managed super fund (SMSF) can own an investment property together as tenants in common. Each of you will hold a share on the title reflecting your proportion of ownership. However, even though you might have personal ownership in the property, the property must still be acquired and used in a way that satisfies the Superannuation Industry (Supervision) Act 1993 (SIS Act). Breaching the rules may result in the ATO taking compliance action against the fund. That action can range from administrative penalties on each trustee, to disqualification. In the most serious cases the fund can be made non-complying and lose its concessional tax treatment. So understanding the rules is important.
Rent, rates, insurance, repairs, agent fees and improvement costs must be split in line with the proportion of ownership interest.
Your fund’s share of the rent must go into the fund’s own bank account. If you pay for an expense personally which should have been borne by the fund, the fund can be treated as having non-arm’s length expenditure. The rental income received by the fund and any capital gain when the property is sold, may then be taxed at 45%. If the fund pays more than its share of expenses, it may be providing financial assistance to a member. This is prohibited and carries penalties.
The purpose of your fund is to provide you with retirement benefits. Even though you might partially own the property, you may not use it yourself.
Neither you nor a related party, such as a relative, can live in it, even at full market rent. Exceptions apply to business premises that are used “wholly and exclusively” in a business. These business premises are known as business real property. Business real property can be leased to your own business, provided the rent is at market rate and paid on time.
Your fund is generally prohibited from buying assets from you or “related parties”. This means you will need to purchase the property from an unrelated third party unless it is business real property. Also, your fund cannot buy out your personal share in the property at a later time unless the property is business real property.
Your fund cannot give a charge over its assets. This means you cannot borrow against your share of the property as the lender would ordinarily want to take security over the whole property, not just your share.
Co-ownership of property with your SMSF can work well, particularly for business premises, but it can be a complicated arrangement that carries many risks. It is important to get advice before entering these arrangements.
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