Smart ways to use super for unit purchases

Purchasing a unit through your Self-Managed Super Fund means borrowing under a Limited Recourse Borrowing Arrangement, where the loan is secured only against the property being purchased.

For industrial pharmacists working in manufacturing, quality assurance, or regulatory roles, a unit can offer a more accessible entry point into property investment through your SMSF compared to a standalone house. The structure differs from a standard home loan because the property must be held in a bare trust until the loan is repaid, and it must exist solely to generate retirement benefits for fund members.

Why Units Work Well for SMSF Purchases

Units typically require a lower purchase price than houses, which means a smaller deposit and lower ongoing loan commitments. Non-bank and specialist lenders now offer LVRs up to 80% for residential property held in an SMSF, a significant shift from the historically conservative range of around 60-70%. This change allows you to commit less of your super balance upfront while still accessing property exposure.

Consider an industrial pharmacist with $200,000 in their SMSF who wants to purchase a unit. At 80% LVR, that $200,000 deposit could support a unit purchase of up to $1,000,000, though most units in metropolitan areas fall well below that threshold. The rental income generated flows back into the fund and is taxed at a concessional rate of 15%, which compares favourably to personal income tax rates that industrial pharmacists typically face.

The property must meet the sole purpose test. You cannot live in the unit, lease it to yourself, or allow family members to use it. It exists purely as an investment asset for your retirement.

How the Limited Recourse Borrowing Arrangement Works

The SMSF loan structure requires the unit to be held in a separate bare trust until the debt is repaid. The SMSF trustee borrows the funds, the lender's recourse is limited to the property itself, and the bare trust holds legal title while your SMSF holds the beneficial interest.

Each loan covers a single property in a separate bare trust. If you wanted to purchase two units through your SMSF, you would need two separate borrowing arrangements. This structure protects the other assets in your fund if the property investment does not perform as expected.

You cannot use the loan to fund structural improvements or anything that changes the fundamental character of the property while the loan is outstanding. Repairs and maintenance are permitted, but adding a second bathroom or reconfiguring the internal layout is not. This restriction matters more for units than houses because strata by-laws may already limit what structural changes you can make, but the SMSF rules add an additional layer of constraint.

SMSF Loan Interest Rates and Borrowing Capacity

SMSF property loan interest rates sit higher than standard residential loans because lenders price in the additional compliance requirements and limited recourse structure. Variable rates are more common than fixed rates in the SMSF lending space, though some lenders offer both.

Your borrowing capacity depends on the rental income the unit can generate, not your personal income. Lenders assess the property's ability to service the debt through rental yield. Industrial pharmacists accustomed to high personal incomes may find this shift frustrating, but it reflects the fact that the loan sits inside the super fund, not on your personal balance sheet.

If your SMSF holds $250,000 and you are looking at a unit that generates $25,000 in annual rent, the lender will assess whether that rental income can cover the loan repayments, property management fees, strata levies, and other costs. You may need to contribute additional funds to the SMSF each year to cover any shortfall, up to the concessional contribution cap.

What to Know Before You Apply

Trustees, both new and existing, must complete certified training covering Limited Recourse Borrowing Arrangements, related-party transactions, cash flow planning, and compliance obligations. Non-compliance may result in penalties of up to $19,800, or even fund disqualification. This is not optional, and it applies even if you have been running your SMSF for years.

SMSFs with borrowing arrangements face heightened data-matching and transaction-monitoring. You will need rigorous record-keeping to demonstrate that the loan terms are on an arm's length basis, that the property meets the sole purpose test, and that all transactions are properly documented. For the current financial year, the safe harbour interest rate for related-party LRBAs used to acquire real property is 8.95%. If you are borrowing from a related party, the rate must be at or above this threshold to satisfy the arm's length requirement.

Working with an SMSF mortgage broker who understands the interplay between super law, tax treatment, and lending criteria will reduce the likelihood of a structural error that could cost you thousands in penalties or tax.

Rental Income, Tax, and Capital Gains in an SMSF

Rental income generated by the unit is taxed at 15% while your SMSF is in accumulation phase. Once the fund moves into pension phase, that income becomes tax-exempt. This difference is significant if you are purchasing the unit several years before retirement.

Capital gains on property sold while the SMSF is in accumulation phase are taxed at 15%, with a one-third discount if the property has been held for more than 12 months, bringing the effective rate to 10%. If the unit is sold after the fund has moved into pension phase, the capital gain is tax-exempt.

These tax settings make units held in an SMSF particularly appealing for industrial pharmacists in higher income brackets who want to build wealth in a lower-tax environment. The compounding effect over 10 to 15 years can be substantial, especially if the unit is located in an area with consistent rental demand and moderate capital growth.

Comparing SMSF Lenders

Not all lenders offer SMSF loans, and those that do impose different criteria around deposit size, loan terms, and property types. Some will lend on units in buildings with fewer than six storeys, while others accept high-rise developments. Some exclude certain postcodes or require a higher deposit for units in regional areas.

When you compare SMSF lenders, focus on the combination of interest rate, LVR, and flexibility around property type. A lender offering 80% LVR at a slightly higher rate may still be the better option if it allows you to retain more cash in your SMSF for diversification or unexpected costs.

Industrial pharmacists with irregular income patterns due to contract roles or part-time consulting should confirm that the lender assesses serviceability based on the property's rental yield rather than personal income, as this removes the volatility that might otherwise affect approval.

Setting Up the Loan and Bare Trust

You will need a solicitor or legal specialist to establish the bare trust deed, and you will need to ensure the trustee structure of your SMSF is correctly configured. If you are the sole member of your SMSF, you cannot be the sole trustee. You will need either a corporate trustee or a second individual trustee.

The settlement process mirrors a standard property purchase, but the contract must be signed by the trustee of the bare trust, and the deposit must come from the SMSF bank account. You cannot pay the deposit from your personal funds and reimburse yourself later.

Once the unit is purchased and the loan is in place, all rental income must flow into the SMSF, and all expenses must be paid from the SMSF. You cannot pay strata levies from your personal account, even temporarily. This level of separation is critical to maintaining compliance with super law.

If you already hold investment property outside your SMSF, the cashflow and tax treatment will feel familiar, but the administrative requirements are more rigid.

You can call one of our team or book an appointment at a time that works for you to discuss how an SMSF property loan might fit with your current super balance, contribution strategy, and retirement timeline.

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