For a great many Australians, property is not just the place they live. It’s a great income source with growth that is stable over the long term. Increasingly, Perth has seen a rise in the number of investors looking to buy property through their self-managed super funds (SMSF) as part of their retirement plan. But investment of this nature also carries stringent conditions you must adhere to in order to remain compliant with the ATO. In this post, we will provide an overview of the SMSF rules in 2025 for residential and commercial properties and more.
Understanding SMSF Property Investment
With a self-managed super fund property investment, you can invest your retirement savings into buying property. Contrary to many super funds, SMSFs allow you to manage your own investments and select the assets that can help you achieve your financial objectives. But all investments must meet the ATO’s rules as a way to show your fund is only running for the purpose of delivering retirement benefits.
You must have a clear SMSF investment strategy before you go ahead and buy the property. This plan should describe how the investment fits in with your entire fund, including things like risk, diversity, liquidity, and potential returns. The investment must benefit all fund members equally and not give any member in the fund a personal financial advantage at that time.
Key SMSF Property Investment Rules in 2025
The ATO SMSF property regulations have been designed to ensure that property investments genuinely serve retirement purposes and are managed responsibly. While the basic principles remain the same, 2025 brings an increased focus on compliance, documentation, and fair market valuation.
Let’s look at how the SMSF property rules 2025 differ for residential and commercial property investments.
Residential Property Investment Rules
Buying residential property through an SMSF comes with several strict conditions. These SMSF property rules in 2025 exist to prevent fund members from misusing super assets for personal benefit.
Some of the key rules for residential properties are as follows:
- No personal use or related-party rent: The property cannot be lived in by you, your family, or any related parties of the SMSF. This means you cannot stay in the property even temporarily or lease it to a family member, even at market rent.
- Sole purpose test: The investment must solely aim to provide retirement benefits. Any use outside this purpose could cause your SMSF to lose its compliance status.
- Independent purchase and lease arrangements: The purchase must be made at arm’s length, meaning it must reflect true market value, and all lease agreements must be on commercial terms.
- Compliance with fund trust deed and investment strategy: Your SMSF trust deed must allow property investments. Also, the property should fit within your documented investment strategy in terms of diversification and risk tolerance.
- Independent valuation: You must obtain an updated market valuation of the assets in your fund on a regular basis, such as prior to the fund’s audit or when members begin to draw their pensions.
In addition to such basic needs, investors must be mindful of those recurring costs and the corresponding maintenance responsibilities. An SMSF needs to be sufficiently liquid to be able to take care of rates, insurance and repairs without having to access external funds. Demand for off-the-plan and apartment sales has increased in Perth’s residential market.
But these can be risky for SMSFs because they settle later and with uncertain valuation results. Make sure you do proper due diligence before signing those contracts. By knowing and adhering to these SMSF property purchase rules, you will stay compliant while staying clear of expensive penalties.
Commercial Property Investment Rules
Commercial properties provide more flexibility compared to residential ones. In 2025, self-managed super fund property investment in commercial real estate continues to be a popular choice among business owners, especially in Perth’s growing commercial districts.
Some of the key rules for commercial properties are as follows:
- Leasing to a related business is allowed: Your SMSF can lease a commercial property to a business owned by a member or a related party, provided the lease is conducted at market value and documented in writing.
- Arm’s length transactions: All dealings, including purchase price and rent, must reflect genuine market rates.
- Property maintenance and expenses: All property-related expenses must be paid directly from the SMSF, and all income must return to the fund.
- Independent valuation: You should do an independent valuation from time to time to check the fair market value.
- GST and tax compliance: Commercial property investors need to be particularly vigilant in managing GST liabilities when the property is over the GST turnover threshold.
Across Perth, many business owners are utilising their SMSF to buy premises such as offices, factory units or retail space for their own businesses. This is a useful tactic to free up money for personal use and have the rent paid directly into the SMSF. Strict documentation of lease agreements and rent payments is vital to avoid ATO scrutiny.
Maintenance and upgrades to commercial properties must be reasonable and not improve the property beyond its original state using funding resources. By adhering to these ATO SMSF property regulations, you can build a strong income-generating asset within your fund.
Borrowing to Buy Property Through SMSF
You can borrow in the SMSF through an LRBA (Limited Resource Borrowing Arrangement). Under this arrangement, the fund takes out a loan to purchase an asset. But if the borrower defaults, the lender can lay claim only to that particular asset. This protects other fund assets.
When borrowing to buy property:
- The property must be held in a separate trust until the loan is repaid.
- The SMSF can only purchase one single asset with each LRBA.
- Refinancing or improving the property using borrowed funds is generally restricted.
- The lender can be a bank or even a related party, as long as the loan terms meet market conditions.
A solid SMSF management plan should include a detailed review of how borrowing affects your liquidity and long-term investment performance. It’s crucial to seek professional advice before entering an LRBA to avoid breaching ATO requirements.
Tax Benefits and Obligations
One of the main attractions of setting up a self-managed super fund to buy property is the potential tax benefit. SMSFs are subject to low tax rates that can greatly enhance long-term returns.
Tax benefits include:
- Concessional tax rate: Income derived by way of property investments within an SMSF is taxed at a concessional 15%.
- Capital gains discount: Properties held for longer than 12 months attract a one-third capital gains tax discount, which brings the effective rate down to 10%.
- No tax in pension phase: When the SMSF goes into its pension phase, any rental income and capital gain from the property can be tax-free, provided it is below a certain balance limit.
However, there are also obligations:
- All income and expenses must flow through the fund’s account.
- Annual audits are mandatory to ensure compliance.
- Accurate documentation is essential to prove that all dealings are at market value.
When managed properly, the tax efficiency of SMSF estate planning can play a major role in building retirement wealth while keeping tax liabilities low.
Common Mistakes to Avoid When Investing in Property Through SMSF
Investing in property through an SMSF can deliver strong returns. But it’s easy to make mistakes that could cause compliance issues or financial losses.
Some common mistakes to avoid are as follows:
- Buying property without verifying it fits within the fund’s investment strategy.
- Using the property for personal or family purposes.
- Ignoring market valuation and documentation requirements.
- Failing to budget for property maintenance and insurance costs.
- Borrowing beyond the fund’s capacity to service the loan.
- Not keeping detailed records of all transactions and leases.
- Overlooking the importance of diversification in your family estate planning strategy.
Avoiding these errors helps ensure your SMSF remains compliant and financially healthy for the long term.
Working with SMSF Advisors and Accountants
There are legal, financial and tax duties involved with managing an SMSF property investment. Working with seasoned professionals can help ease the process and keep it smooth.
Engaging SMSF services Perth provides you with professional advice that is designed for the local market and ATO compliance in a hassle-free manner. Advisers can assist you to reviewing options, establishing compliant structures, administering loans and lodging correct tax office returns.
Some accountants have special training in self-managed super fund property investment, and they can help you to ensure these super assets are appropriately structured to support your retirement as well as that of your family after you’re gone. They link your SMSF into your will, trust and total estate strategy so that there is a seamless transition to the hands of your intended beneficiaries for your property investments.
If you’re unsure how to include SMSF in your estate plan, there are professionals who can help you with beneficiary nominations, reversionary pensions and taxation issues. When planned properly, the wealth represented by your real estate assets can provide security not only in retirement but for many generations.
To Conclude
Property investment within the SMSF structure creates an exceptional opportunity for Australians to grow their retirement corpus while still having control over their wealth. But success depends on keeping up with the latest SMSF property rules, knowing borrowing limits, fulfilling tax duties and avoiding traps. The right professional support and strategic planning ensure that your SMSF estate planning in Perth can serve as a solid foundation for a comfortable retirement and lasting family legacy.