Borrowing Through Your SMSF – Is Change Coming?

Posted Tuesday, April 28, 2015 Comments (0)

There has been plenty of speculation in the media of late about significant changes being made to the ability of a Self-Managed Super Fund (SMSF) to borrow funds to purchase property. David Murray’s recent Financial System Inquiry has even gone to the extent of recommending the government ban the strategy completely. 

Comments more recently by Assistant Treasurer Josh Frydenberg were interpreted by some as suggesting the government was seriously considering Murray’s recommendation, although most commentators are suggesting this would be too drastic a step, and instead a tightening of the current rules is more likely. Whatever the outcome, we can reasonably expect changes to current practices sometime soon, and perhaps even in conjunction with the federal budget due mid-May. 

Why Make Changes? 

Murray’s concerns centred around direct borrowing by super funds being inconsistent with the objectives of superannuation: to be a savings vehicle for retirement income rather than a wealth management vehicle. This concern is backed by statistics that show that SMSF borrowing had more than tripled from $2.5B at the end of June 2012 to $8.7B at the end of June 2014. 

Perhaps though one of the other catalysts for change is the growing trend of property spruikers targeting the SMSF sector as a new hunting ground for purchasers of newly developed residential properties. The chief concern here is that those running the seminars are there only to sell properties, yet legally they are deemed to be providing advice and therefore must be appropriately licensed by ASIC. This opens the can of worms of whether the spruiker is providing proper impartial advice to the SMSF, or are they only after a quick and easy sale / commission? 

What Can Be Done Now? 

With no clear timetable as to what the changes might be and when they might occur (and I am not brave enough to speculate what the government may decide to do!), let’s review what we can currently do in the SMSF borrowing space: 

  • Potential to borrow up to 70% (commercial) and 80% (residential) of property value 
  • Interest rate margins now more in line with “standard” loan transactions (ie. no extra risk margins) 
  • Actual borrowing rates are well below the yield of the asset being purchased, creating a strong positive cashflow in most cases 
  • Ability to sell owner-occupied commercial properties into your SMSF, which will deliver cashflow back into the trading business 


Owning property within your SMSF (either geared or not) provides diversification from the usual investments of cash or equities, and in today’s market of historically low borrowing rates, it seems silly not to consider (with the appropriate impartial advice) the ability to gear the purchase of your next property, whilst you still can.

Stephen Budd is a Partner of Balmain Commercial with over 15 years of experience in providing commercial property finance solutions for his clients. 

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