Buying with an SMSF: The Do’s, Don’ts and Timing for Off-the-Plan

Executive Summary:

Buying an off-the-plan apartment in your SMSF is possible when the structure, names and money flow are set up correctly. The SMSF must invest only for retirement benefits and any borrowing must be under a Limited Recourse Borrowing Arrangement (LRBA). The critical path is timing. Get the deed right, line up a lender that supports OTP (off-the-plan), create the custodian or bare trust before you sign, then execute the contract in the precise legal names. Pay the deposit from SMSF funds, keep records throughout the build and prepare for valuation checks near completion.

A) How SMSFs Buy Property (OTP Edition)

An SMSF’s trustee invests according to the fund’s investment strategy and the sole purpose test. If borrowing is needed, it is done under an LRBA (Limited Recourse Borrowing Arrangement), so the lender’s recourse is limited to the property. A separate custodian or bare trust holds title on behalf of the SMSF while the LRBA is in place. This guide is aimed at residential off-the-plan purchases, not business real property.

B) The Timing Blueprint (Critical Path)

1.     Set up/confirm SMSF and trustee - Confirm a corporate trustee and a deed that permits LRBA. Update the deed now if needed.
2.   Rollovers and contributions - Move cash into the SMSF so the deposit and costs come from fund money only.
3.   Investment strategy update - Add direct property and leverage. Note a liquidity plan for stamp duty, fees, insurance and repayments.
4.     Lender discovery - Shortlist lenders that accept SMSF OTP. Get written guidance on LVR, valuation and contractual obligations.
5.     Custodian or bare trust set-up - Create the custodian company and bare trust before you sign. Keep executed deeds on file.
6.   Contract execution - Use exact names: Custodian Pty Ltd ATF [Property Custodian Trust] as trustee for [SMSF Name].
7.     Deposit payment - Pay from the SMSF bank account. Do not pay personally, then reimburse.
8.     Build period - Keep tidy records. Avoid variations that look like substantial improvements under LRBA.
9.     Pre-settlement prep - Order valuation, finalise loan docs and arrange insurance to start on settlement.
10.   Settlement - Conveyancer coordinates PEXA and duty. LRBA draws down and the title goes to the custodian as trustee.
11.   Post-settlement - Appoint a manager, confirm rent and expenses, then file all documents for the SMSF audit.
12. C) The Do’s ✅

✅ Do ensure the trust deed permits borrowing and LRBA.

✅ Do set up the bare trust before you sign.

✅ Do pay the deposit from SMSF cash or a permitted contribution rolled in first.

✅ Do keep all terms at arm’s length.

✅ Do hold a liquidity buffer for duty, legal, lender fees and insurance.

✅ Do obtain written lender indications on OTP rules and sunset dates.

✅ Do minute strategy changes for direct property and leverage.

✅ Do arrange building and landlord insurance effective at settlement.

✅ Do plan contributions, rate notices and loan repayments.

D) The Don’ts ❌

❌ Don’t sign in the wrong name.

❌ Don’t pay the deposit personally, then reimburse.

❌ Don’t allow members or relatives to live there.

❌ Don’t assume the LRBA funds upgrades or major variations.

❌ Don’t ignore valuation risk at completion.

❌ Don’t trip on in-house asset or related party rules.

❌ Don’t rely on verbal lender approvals.

E) Contract Mechanics & Naming Conventions

When you sign, the buyer's name must show the custodian holding the property for the SMSF. For example: Custodian Pty Ltd ATF Property Custodian Trust as trustee for Sample SMSF. Use that exact style across the contract, deposit receipt, loan pack and title, so everything matches.

Ask your lawyer to include practical special conditions that work for SMSFs. You want fair sunset date protections, clear limits on assignments and wording the lender accepts for an LRBA.

Upgrades and variations
Personalising small items and like-for-like choices is usually simple. If you are considering bigger changes, touch base with your adviser so the plan stays aligned with LRBA settings. As a guide, if the change keeps the property as originally described, it is often fine. Note each change and keep the paperwork together.

Defects and warranties

Before settlement, agree on an easy process so everyone knows who logs items, who gives the go-ahead for fixes and where documents will be saved for the audit file. The custodian holds legal title for the SMSF, yet you can set a clear workflow with your lawyer, broker and manager so any issues are handled quickly and with confidence.

G) Cash Flow & Cost Map — Worked Example ($800,000 OTP)

Contract price: $800,000

Deposit: 10% at exchange = $80,000

Set-up and advice (legal + custodian/bare trust): $12,500 midpoint of $10k–$15k

Lender fees and valuation: $2,500 midpoint of $2k–$3k

Insurance (from settlement): placeholder $1,000

Target SMSF cash on hand: 30% ≈ $240,000 to cover deposit + costs + buffer

Indicative LRBA: 70% LVR → loan $560,000

Buffer: 3–6 months of repayments and outgoings

Illustrative IO rate 7.5% p.a. → monthly interest ≈ $3,500

Outgoings (OC, rates, management) estimate $900/month

3-month buffer ≈ $13,200 6-month buffer ≈ $26,400

(These are planning figures, not advice. Lender rates and OC fees vary.)

H) Compliance Checklist

Sole purpose test: The property must exist to grow members’ retirement savings only. Not for personal use.

Arm’s length terms: Everything must be at market rate. Pay a fair price, charge market rent, use standard deposits and interest. Ensure you keep written quotes and comparables.

In-house asset and related-party rules: Avoid deals with members, relatives or their entities. Do not lease the property to related parties and do not use related builders unless the terms are clearly marked and fully documented.

Repairs vs improvements under an LRBA: You can repair or maintain to the original standard. Major upgrades that change the property’s nature are generally not allowed while the LRBA is in place.

Paper trail for the SMSF auditor: Keep minutes, signed deeds, the contract, loan pack, invoices, bank statements, rent statements and valuations in one organised file.

I) Off-the-Plan Specific Risks & Mitigations

Market shifts can affect rates, rents and valuations. Use conservative rent and interest assumptions, larger buffers and early lender re-checks during the build. Keep communication lines open with the developer and your broker.

J) Stamp Duty, Tax & Depreciation (High-Level)

Stamp duty is due at settlement and no primary residence concessions apply to a residential SMSF. No GST credits on residential. Depreciation is usually available and a QS report can help. Rental income and expenses flow within the SMSF, with tax outcomes that differ in the accumulation and pension phases.

12) FAQs 

1) Can my SMSF buy off the plan if the bare trust is not set up yet?
Not yet. Set up the custodian company and bare trust first so the contract can be signed in the correct names and the lender can proceed.

2) Can I live in the property later on?
No, while it is held for the SMSF. Any personal use breaks the sole purpose test, so keep it as a pure investment.

3) What if the valuation at completion comes in below the contract price?
You may need to tip in more SMSF cash to close the gap. Plan a buffer early so settlement is not at risk.

4) Can the family rent the property at market rent?
Generally, no for residential property in an SMSF. Related party use creates compliance issues even at market terms.

5) Can the SMSF fund upgrades after settlement under the LRBA?
Repairs and like-for-like replacements are usually fine. Major improvements that change the property are generally not allowed while the LRBA is in place.

6) What if we need to change the purchaser's name during the build?
Get legal advice right away. Name changes can affect duty, lender approval and timing, so handle them with precise documentation.

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