SMSFs can purchase off-the-plan properties; however, there are important restrictions and compliance requirements that trustees must carefully consider before proceeding.
What Is an Off-the-Plan Property?
An off-the-plan property is purchased based on plans, specifications, and proposed designs prior to construction being finalised. Settlement usually occurs once the development has been completed and titles have been issued.
Off-the-plan properties may include:
- Apartments
- Townhouses
- House and land packages
- New residential developments
Investment Strategy Considerations
Trustees must ensure that this type of investment is permitted under the Fund’s investment strategy and is appropriate for the SMSF’s circumstances and objectives.
Where borrowing is involved, trustees generally need to establish the correct structure before signing any contracts. This may include a Limited Recourse Borrowing Arrangement (LRBA) and a separate holding trust structure.
SMSF trustees must ensure the investment satisfies all compliance obligations under superannuation legislation.
Key considerations include:
- The investment must meet the sole purpose test
- Residential property generally cannot be rented to related parties
- Borrowing arrangements must comply with LRBA rules
- The property should usually be acquired under one complete contract where borrowing is involved
- The bare trust structure must be established before purchase documentation is signed
Where land and construction contracts are separated, this may breach the “single acquirable asset” requirements for SMSF borrowing arrangements
ATO Guidance
For detailed guidance on the issues involved we recommend that you read the ATO’s Taxpayer Alert TA and in the minutes of the NTLG Super Technical sub-group (September 2019).
The Purchase Process
The process for purchasing an off-the-plan property through an SMSF may involve:
- Reviewing the SMSF investment strategy
- Obtaining independent professional advice
- Establishing the appropriate purchase structure
- Securing finance approval where applicable
- Reviewing contracts and disclosure documents
- Completing settlement once construction is finalised
Can the SMSF borrow to purchase an off-the-plan property?
Yes, an SMSF can use a Limited Recourse Borrowing Arrangement (LRBA) to purchase an off-the-plan property, provided the arrangement complies with the LRBA rules. An LRBA can only apply to a single acquirable asset.
Accordingly, the purchase should generally be under one complete contract covering both the land and building. Separate land and construction contracts may breach the single acquirable asset requirement.
Trustees should also note that the nature of the asset cannot be fundamentally changed under an LRBA. For example, borrowing to acquire vacant land and later constructing a property on it may breach the LRBA rules.
In addition, contracts should not include extras such as furniture packages, as these may also breach the single acquirable asset requirements.
Can I pay the deposit for an off-the-plan property before establishing an LRBA?
Yes, an SMSF can pay the initial deposit for an off-the-plan property before establishing the LRBA and Bare Trust structure. However, the LRBA and Bare Trust must be properly established by the settlement date of the property.
It is generally recommended that trustees obtain loan pre-approval prior to settlement to ensure the borrowing arrangement can proceed smoothly.
Can the SMSF enter a one-part contract for the off-the-plan property?
With Muncorp Kintegra Living, buyers purchase both the land and home in Melbourne under a one single fixed-price contract.
MunCorp’s exclusive turnkey homes are expected to range between $650,000 and $750,000 fully completed.
This is a one-part contract covering both land and construction, offering a simplified and streamlined purchase process.
- 2% deposit required (e.g. $650,000 townhouse = $13,000 deposit)
- Contract signing within 24–48 hours
- Fixed-price, full turnkey inclusions
- Landscaping included from title
- Estimated build time: 24–28 weeks
- 98% balance payable at completion
- Move-in on completion – no progress payments or construction loan required
For more information, you can contact Martijn from MunCorp via email at martijn@muncorp.com.au, or by calling 0429955900.
When you’re ready, please send us the property details and instruct us to set up the Bare Trust for the SMSF.