Avoid These 4 Mistakes When Buying an Apartment With Super

Borrowing through your super to buy an apartment now works very differently. The rules changed on 10 August 2026, and a loan that was possible a few months ago may no longer be available.

At Grove Financial we sit with Camden families who have built their super over decades and want it to work harder. This article covers the four mistakes we would most like you to avoid before you speak to a lender.

Can an SMSF Still Borrow to Buy an Apartment?

Only in limited cases. For a Limited Recourse Borrowing Arrangement (LRBA) entered into on or after 10 August 2026 to buy real property, the ATO states that the property can only be business real property. The rule does not apply if the fund exchanged a binding contract to acquire the property before 10 August 2026, even if settlement or the loan happens later.

An LRBA is the structure that lets a self-managed super fund borrow. The fund trustee takes out the loan, and the asset is held in a separate SMSF bare trust until the loan is repaid. The ATO states that LRBAs are not banned and that the way they operate has not changed. What changed is which real property can be bought with one. This rule applies whether the lender is a bank, a non-bank lender or a related party.

Mistake One: Assuming a Rented Apartment Qualifies

An apartment rented to a tenant as a home is unlikely to be business real property. Business real property generally means land and buildings used wholly and exclusively in one or more businesses.

Consider a couple in their late fifties who planned to buy an investment apartment through their fund, using a loan. Their plan was to rent it to a household. Under the new rule, that loan could not go ahead. Their options were to buy the apartment without borrowing, using fund cash and contributions, or to look at commercial premises that genuinely meet the business test. They chose to build up contributions within the caps and revisit the purchase later, with no borrowing. The outcome was a slower plan, but one that sat inside the law.

An SMSF can still invest in residential property that is not business real property, as long as it meets all other rules. It just cannot be financed under an LRBA. The trade-off is that a cash purchase takes a much larger share of the fund's balance, which reduces diversification.

Mistake Two: Forgetting the Test Applies for the Life of the Loan

The property must be business real property when the loan starts and for as long as the loan is in place. If it stops being wholly and exclusively used in a business at any point, the fund has breached the borrowing rules and compliance action may apply.

The ATO states that a property leased as commercial premises does not lose its status just because the owner is between tenants. It does if the owner abandons plans to lease it. If you are buying premises that cannot start business use straight away, the fund needs to show the business has started when the loan begins. That is why a commercial loans conversation and an SMSF loans conversation need to happen together.

The sole purpose test also still applies. The fund must be maintained to provide retirement benefits, so the purchase should be made for that reason and not for a member's personal use.

Refinancing an Existing SMSF Apartment Loan

If your fund entered an LRBA before 10 August 2026 to buy real property, the new rule does not affect it. That includes when the fund maintains or refinances the loan on or after that date.

As an example, consider trustees who borrowed to buy a residential apartment through their fund last year. They worry their lender's current terms no longer suit them and assume a refinance would trigger the new rule. In fact the existing LRBA is not affected, so they can look at refinancing options. The loan can only be used for the same single asset and cannot fund improvements to it. They compare lenders, including how each treats deposit requirements and fees, and move to a lender whose terms suit them. The outcome is a loan that is better matched to the fund, without breaching the borrowing rules. The trade-off is that lenders can price SMSF loans differently from standard home loans, and switching may involve exit and establishment costs.

Mistake Three: Overlooking Tax and Super Balance Effects

Tax outcomes depend on your fund's phase and circumstances, so speak with your accountant before you commit. In accumulation phase, a complying SMSF is taxed at 15 per cent on assessable income, including net capital gains.

If the fund holds an asset for at least 12 months, it is entitled to the SMSF CGT discount of one-third. That gives an effective rate of 10 per cent on the discounted gain, though it is not a fixed rate and depends on the cost base and the fund's overall position. In pension phase, a capital gain is not automatically exempt, and the result depends on how the fund calculates its exempt income.

Division 296 tax started on 1 July 2026 and is assessed to the individual. For 2026-27 it applies to earnings linked to the part of a member's balance above $3 million, with an extra rate above $10 million. LRBA amounts are never included in a member's balance for this purpose. Other balance tests treat LRBA amounts differently, which can affect contribution caps, so this is a point for your accountant.

Mistake Four: Treating the Loan Application as an Afterthought

A fund's borrowing capacity and lender choice should be settled before you sign a contract. Lenders assess the fund's income, liquid assets and the rental or business income the property will produce, and these vary between lenders.

Before you make an offer, work through an SMSF loan application with an SMSF mortgage broker. We can help you compare SMSF lenders on deposit requirements, the maximum loan-to-value ratio, fees and whether they offer a fixed or variable rate. A useful starting point is our borrowing capacity page. The loan terms matter too. A related party lender must charge no more than an arm's length rate, and documents should show that clearly.

The ATO has also opened consultation on draft updates to its rulings on LRBA concepts and business real property. The drafts are not final, so the detail may shift. A broker who follows these changes can help you avoid surprises.

A Calm Plan Before You Sign

The best time to ask questions is before a contract is exchanged. If you are in Camden and weighing up an apartment, a commercial property or an existing loan, we will talk through the structure, the lender options and the questions to put to your accountant and SMSF specialist. Call one of our team or book an appointment at a time that works for you, and we will take it one step at a time with you.

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