Property through super in a SMSF – Part 3: 20 most common mistakes

Buy Sell PropertyFollowing on from our previous 2 articles on SMSF and Property, the next logical step is to show where others have commonly made mistakes and how to avoid these errors. I have looked at the errors as they would be experienced in the pre-planning phase, during the borrowing process and once the loan is in place to make it easier to follow and to refer to later. In my opinion, these errors are the most common cause of investor angst and additional costs. They can lead to extremely negative experiences when borrowing to buy property inside a SMSF and are best avoided!

Before the purchase:

Error #1 – Believing purchasing an SMSF property purchase is a standard process

The superannuation system was set up as a concessionally taxed system with one sole purpose and that is to provide for retirement income. The regulators therefore are determined to preserve the integrity of this aim and you should keep this in mind when dealing with any issue related to superannuation and your self-managed super fund in particular.

There are numerous compliance obligations that you must consider that would not be of concern to you if buying a property in your own name or that of a family trust.

Those jumping in and expecting to be able to fix mistakes should be aware that the system leaves little room for error or mitigation of mistakes.

Error #2 – Not seeking pre-approval of a loan and knowing the lender’s requirements before incurring costs

I recommend you use a broker to find out exactly what the lender will require for a loan and check if you would qualify in financial terms before incurring any of the costs in the process. You should expect closer scrutiny of the fund’s deed and financials, your own position and the advice you have received than with ordinary property loans because the lender is offering you a limited recourse product.

Error #3 – Using out of date SMSF trust deeds

Limited recourse borrowing arrangements for superannuation funds is still relatively new and was introduced in September 2007 with a major update to the law in July 2010 and 2013. Further clarifications were made only recently and they may be needed to implement your chosen strategy. Any trust deed set up before July 2007 is unlikely to have the relevant powers required to borrow, grant a charge over an asset, or use a holding trust. As such, I would always recommend a deed upgrade before commencing the process.

And as the lender’s solicitors will review your deed before authorising the loan, any omissions in the deed will only result in delays, costs to rectify the deed and possibly additional fees to the lenders solicitors to approve such subsequent changes. You may miss your settlement date and breach your contract as a result.

Error #4 – Not having a consistent record of contributions or ability to forecast future contributions

Another reason for planning in advance for this strategy is to be able to display a history of making regular contributions to the fund to satisfy bank requirements. They will question the lack of contributions as an indication of financial hardship or lack of commitment to building liquidity in the fund. Likewise, you need to be able to show capacity to make future contributions. Already, the lowering of the concessional contributions cap to $25,000 has put some single member funds in trouble.

During the contract process:

Error #5 – Not making one person responsible for management and control of the process

The process, as outlined in last week’s article, involves the lender, the vendor and your own legal advisers, your tax advisor/accountant, possibly a legal document company and a mortgage broker. You can see that a delay in any part of the process can be a nightmare to sort out. You can see the benefit of having someone on your side who does know what they’re talking about when it comes to SMSF property investment. Ideally that person should be prepared to overview the deal and be the central point of contact for the others involved who may have issues. Having been brought in to handle problems I can tell you that it can be a mess to untangle.

Error #6- Buying a property before the SMSF is properly set up or the holding trustee registered

There is no room for “buy now – think later” moves on a weekend buying spree when dealing with an SMSF. If the SMSF has not been setup then a trust does not exist. If you sign a contract or place a deposit for a property without having the name holding Trustee Company established then you face double stamp duty and capital gains tax issues. Us of “and/or nominee” is very dangerous outside of Victoria.

Error #7 – Not setting up the SMSF and holding trust correctly

Using individual trustees for either the SMSF or the holding trustee may lead to finance being delayed or refused. It may also lead to potential exposure to litigation, putting personal assets at risk. For example, should a trades person be injured while working on the property and sue all parties for negligence, an individual trustee will be directly exposed. Using a trading company as trustee for either position is also a mistake, likely to compromise the “bare” trust arrangement.

In some states, such as NSW, using “and/or nominee” clause could result in ad valorem duty being charged when you then nominate the holding trustee as the alternative purchaser, as this can be seen as a ‘sub-sale’. From what I understand currently Victoria is the only state where ‘and/or nominee’ can be used, but you should check the rules with a local solicitor/conveyancer.

In NSW, Tasmania, the ACT, South Australia, Queensland and Victoria (subject to above), the purchasing entity should be the name of the holding trustee only. You should not use any references to “as trustee for the bare trust” or “as trustee for the XXX SMSF”. If you get this wrong, it may result in adverse and possible double stamp duty implications.

In WA, the word ‘for’ instead of “as trustee for” must be used between the holding trustee and SMSF trustee names. It should be “Holding Trustee Pty Ltd ACN for Super Fund Trustee Pty Ltd ACN”.

The name of the purchaser on the contract for NT property is very specific. It needs to be “Holding Trustee Pty Ltd ACN as trustee for Name of Holding Trust as bare trustee for Fund Trustee Pty Ltd ACN as trustee for Name of Fund ABN”.

Error #8 – Not properly implementing rules concerning ‘single acquirable assets’

In simple terms, the rules state that trusts should purchase a single asset on one title. The ATO ruling SMSFR 2012/1: application of key concepts with LRBAs, provides a degree of clarity by explaining under what circumstances an asset could be viewed as a single asset, which predominantly revolves around whether it cannot be dealt with separately (even if multiple titles are involved). The ATO gives 15 examples as a guide.

Error #9 – Using the lender as holding trustee in a related party loan (where you lend to your fund)

The presence of any conflict, like in a case where the holding trustee is also the lender to the fund, may weaken the “absolute entitlement‟ of the SMSF to the asset. This could have capital gains and land tax consequences for the fund. An example would be the loan coming from your family trust and having the trustee of that family trust also act as the trustee of the holding trust.

Error #10 – Signing up the holding trustee as the borrower instead of the SMSF trustee

Again, I would emphasise that the holding trustee simply holds the title and nothing else. The SMSF trustee is the beneficial owner and must be the borrower on all documentation. If the holding trustee is the borrower, then full stamp duty will be payable on any transfer of title from the holding trustee to the SMSF Trustee when the loan is paid up. Sometimes the holding trustee will have to sign documentation in order for the documentation to be effective. Where this is the case, it should be recorded that the trustee is acting on the instructions of the beneficial owner (i.e. the SMSF trustee).

Error #11– Paying holding fee, deposit, settlement payment or any costs from any source other than from the SMSF

All payments in respect of the transaction must come from the SMSF bank account or the loan facility. In order to facilitate the property transfer on completion of the loan, a documentary evidence showing the trail of payments will be need to be submitted with the request. This is another reason for getting the holding trust deed stamped as recommended later in order to pick up on errors early and seek remedies before financials are completed. This is far better than trying to find solutions years later.

After the settlement:

Error #12 – Breaking the “safe harbour”, “arm’s length” and “sole purpose” rules when dealing with related parties

If you have any interaction with the SMSF directly yourself, or through a company or trust entity controlled by you or a related party, you must be very careful to do so as if dealing with a third-party. Here are a few examples of what this means:

  • putting a proper lease in place for business real property;
  • paying rent on time;
  • making loan repayments on time or charging penalty rates as per the loan agreement;
  • not making personal use of an SMSF residential property even if you agree to pay rent; and
  • not letting your child or sibling move in to a residential property while they get through a rough time.

See: ATO guidance on related party SMSF loans (LRBAs)

Tip: For an online source to a flexible comprehensive lease agreement that ticks all the boxes  you can visit DIY Legal Kits – Lease Agreements

Error #13 – Leaving the stamping of the holding trust deed to be completed too late

The holding trust deed must be stamped to ensure that the final transfer from the holding trustee to the SMSF trustee attracts only nominal stamp duty. Best practice, and in some states the rules dictate it, is to have the final transfer stamped generally within 30-90 days after it has been activated. As mentioned previously, it makes common sense to gather all the supporting documents stamped while available, and the process confirmed before doing the funds financials for the year.

Imagine if your spouse had passed away, or you lost some of the bank’s statements/documentation when trying to do it later, and found double stamp duty being applied by the regulators in your state. Better safe than sorry.

Error #14 – Holding Trustee doing anything other than holding legal title

The holding trustee only exists to hold legal title to the property while there is a loan outstanding. It may also grant security via a mortgage to the lender and enter into leases of the property on behalf of, and as instructed by, the SMSF trustee. A common mistake is for the holding trustee to have its own Australian business number (ABN), tax file number (TFN), or bank account, which should all be avoided.

If the holding trustee performs any other active duties and does not act solely at the direction of the SMSF trustee, then the holding trust may be found to be a separate entity for the purposes of reporting GST. It would then need to prepare and lodge tax returns and the look-through approach to the holding trust may not apply for income, land tax and CGT purposes, which of course means outside of the concessional superannuation environment.

Beware of any lender that requests additional duties on the holding trustee and have your solicitor seek to remove these clauses.

Error #15 – Not considering the liquidity needs of the SMSF during retirement phase

If you plan to put your fund into pension phase while still holding the property then you need to ensure the fund has enough liquidity to pay the minimum pensions, expected lumps sums and maintenance costs of the fund, such as accounting and advice fees. If unable to do so you may exacerbate the position by having to return to accumulation phase and pay tax on the rental income.

Error #16 – Not considering the liquidity needs of the SMSF during periods the property is unoccupied

Property occupancy is rarely continuous and you need to ensure you have the liquidity to make loan repayments and property expenses during periods without tenants. This is why we warn about setting up funds with small balances or using a high proportion of the fund balance for a single asset purchase.

Error #17 – Not considering insurance for the property, the SMSF members’ lives, or your contribution capacity

You need to make sure the property is insured in the name of the SMSF trustee so a loan can be paid out in the event of fire or destruction. You should also ensure that unless you have other funds available within the fund, or can contribute enough to repay the loan on death of a member, that you have life and disability cover up to at least the value of the loan on each member. It is now a legal obligation of the Trustees to consider the insurance needs of the members regularly. If you are negatively gearing, and will rely on your contributions to the cover loan repayment shortfall, then you should additionally consider income protection insurance.

Error #18 – Not understanding the rules regulating the use of borrowed funds for repairs and maintenance, rather than improvements

You can harness the DIY renovator within you but the property developer may need to be shackled when it comes to SMSF property under a limited recourse borrowing arrangement.

Again, I refer to SMSFR 2012/1 for an explanation of the differences between these very similar terms. In basic terms, you can repair and maintain with the borrowed funds but can only improve the property to a certain extent with other funds of the SMSF. Your SMSF’s auditor and the ATO will keep a close eye on any such expenses and the source of funding. Read here for more detail SMSF Borrowing: What Can I Do With An Investment Property Within The Rules.

Error #19 – Going a step too far and creating a ‘replacement asset’

Remembering this is not a business venture, it is an investment within a heavily legislated structure that has a primary focus of providing for your retirement, you need to be wary of any form of ‘development’.

If you proceed to make improvements so extensive that the result is an asset that is substantially different from the original then you may have in effect created a ‘replacement asset’ in the eyes of the regulator: the ATO.

Some examples of ‘replacement assets’ provided by the ATO include:

  • the subdivision of a single plot of land on a single title into smaller plots with individual titles;
  • the building of a house on a vacant plot of land;
  • the demolition of an existing house and its replacement with three strata title units; and
  • the re-zoning of the land upon which an existing house stands and its transformation into commercial premises.

If the ATO considers that the character of the asset has been changed to such a degree, as outlined in the examples above, it now constitutes a replacement asset that they will deem falls outside the guidelines and may make the SMSF non-compliant.

Error #20 – Not registering for GST in the name of the SMSF trustee only

Thanks to recognition of the strategy by the tax office, where the property is commercial and the GST turnover is greater than $75,000, you do not need to register the holding trust for GST, only the SMSF needs to be registered.

This also means if the property is transferred to the SMSF trustee, this doesn’t constitute a taxable supply and thus does not give rise to a GST liability.

The bottom line: This is a comprehensive, but probably not exhaustive list of the errors that SMSF trustees can make in the process of managing a loan to purchase a property in their super. It is essential that you plan the purchase of a property well and do not act in haste or take advice from someone well-intentioned but without a clear understanding of the laws. Experience in dealing with the transaction from start to finish is essential to avoid repeating other peoples’ mistakes.

As always please contact me if you want to look at your own options. You can make an appointment by clicking here. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Leave a comment


  1. Reeta Devi

     /  October 4, 2020

    Hi there

    Do you have a DYI template on how to write a Service Contract Agreement based on SMSF property renovation in South Australia with no Borrowings please.
    The agreement between the trustee and the builder/sub contractors for the limit upto
    Appreciate your help.


  2. helen sloan

     /  August 18, 2018

    Do you have to draw the minimum of 4 and 5 percent for your age bracket from the rental of a property purchased under a self managed super fund? If the rental does not cover this amount when you factor in the purchase price plus costs, is this breaking the ATO guidelines?


    • A member only has to draw the minimum pension if they are in Pension phase. If the fund does not have enough cash then they could elect to remain in accumulation phase where the fund pays tax on the earnings but the member does not have to drawdown funds.

      One member can be in pension phase and the other in accumulation or you can have part of your account in accumulation and part in pension. So seek advice on your personal situation.

      Hope this helps.



    • helen sloan

       /  August 18, 2018

      Hi Liam. Thank you very much for your reply, we greatly appreciate your promptness in clarifying this.

      Liked by 1 person

  3. Richard Horne

     /  April 3, 2018

    Hi, We have a 550ha rural property that the grazing rights are leased to a neighbour farmer, We have installed a caretaker cabin due to the remote location in the WA Wheatbelt. We have considered fencing the caretaker cabin in an area under 2ha and making it our dwelling. We believe so far this would still comply with the rules? the next issue we dont seem to be able to resolve is would we be liable for rent for living in the dwelling on this primary production property?



    • You should see a tax agent about this question but you could ask whether the value of the rent would be offset by your caretaker duties in looking after the place, fences, pest control etc. One concern is the SMSF has leased the land to the neighbour not you and therefore the tenancy of the Caretakers cottage by you may be seen as not part of the “business concern”. You may need to consider the SMSF leasing the property to you and then you sub-leasing the grazing land to the neighbour to ensure all is above board as you are in fact then running the property business not the SMSF. you should seek specific personal advice on your full circumstances as the above is just general advice.


      • Richard Horne

         /  April 3, 2018

        thanks for the really quick response. I had not thought about leasing to us and then sub leasing, this would open up the primary production capability as we could then look to crop for hay as the local farmer just wants access to the water for his sheep and grazing at certain times of the year as he has 15000 acres.

        Liked by 1 person

  4. Greg

     /  December 3, 2017

    Hi there,
    I wanna ask about buying a property through smsf that once a Bare Trust acount been set up with the property name on the form can you change your mind and replace another smsf property on the existing Bare Trust account ?


    • Yes in general terms normally the legal docs company who provide the Bare Trust will understand and alter the documents to reflect the new property. It is not an account, just a trust arrangement so it’s just a matter of documenting the new trust arrangement. You can use the same corporate trustee as used for the first no longer required trust. As I don’t know your full circumstances you should seek legal advice from the document provider and your advisers on your specific circumstances. Hope this helps.


  5. Colleen

     /  October 30, 2017


    Wanting to get the name on invoices right before repair works begins on our investment property purchased through the SMSF.

    Should invoices be in the name of the Property/Custodian Trustee, the Corporate Trustee, or the name of the SMSF? or all three: the Property Trustee ATF the Coproate Trustee ATF the super fund? (Funds for repairs & improvements will be sourced form the SMSF’s own funds.)

    Is there a simple way to understand which name to use when?
    Appreciate your advice.


    • For best practice, the invoices should be made out to the Corporate Trustee of the fund (if it is also trustee of other entities or is a trading company then add “atf SMSF Fund”. Do check with your administrator to see how they like it classified.

      All expenses should be paid by the fund and claimed in the fund. The bare trustee should hold the property title only and should not do much else (it may be directed to hold an insurance policy or enter a lease agreement). If in doubt “Corporate trustee atf SMSF” for all expenses and income, Bare Trustee for legal agreements and contracts only where the other party insists. For example many insurers will only insure buildings in the Bare/Custodian Trustee name in which case you add the ”Corporate trustee atf SMSF” as an ‘interested party’ similar to how a lender is added.


  6. Paul

     /  August 16, 2017


    I bought a property with approved granny flat through my SMSF in Blacktown 2148.

    My SMSF has a corporate trustee and we setup a bare trust and corporate custodian for bare trust to buy this property. This corporate custodian has ACN but no ABN and no tax file number.

    I need your advise please – this confusion came as my insurer is asking for ABN when I requested insurance under custodian name.

    1. who takes insurance for property? custodian or smsf trustee?
    2. two separate insurances – one each for house and granny flat or one insurance covering both house and granny flat?
    3. property insurance or landlord insurance or both insurances?

    Your clarification will help a lot.


    • In general the policy should be in the name of the smsf trustee but with the interest of the Custodian trustee noted similar to the lender.

      One policy cover both as otherwise the trustee may have trouble with a major claim that affects the whole block if w seperate policies.

      Both insurances, trustees should explain clearly to the insurer what they are looking to insure or use an experienced broker.

      This is general advice only so seek specific advice on your personal situation.


  7. Wow! In the end I got a website from where I can genuinely obtain helpful information regarding my study and knowledge.


  8. Quality articles is the main to attract the users to visit
    the website, that’s what this site is providing.


  9. Wow! This is a comprehensive blog post. As a paraplanner, I often see advisers looking to their paraplanning team to help them wade through the complexities of SMSF Property purchases. Thanks for the comprehensive post on what to watch out for.


  1. Get Super Scheme Smart – ATO warns on dangers of retirement planning schemes | The SMSF Coach
  2. Benefits Of Transferring A Business Property In To Your SMSF – Superannuation Strategy | The SMSF Coach
  3. Buying a Property for your SMSF – Why Use a Buyers Agent | The SMSF Coach
  4. Property through super in a SMSF – Part 2: The Process | The SMSF Coach
  5. Owning your business property in a SMSF | The SMSF Coach

Let us know what you think? Have you got a question based on the article? Let me know

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: