Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 117

SMSFs and house and land packages

Property investment is gradually becoming more popular with SMSF investors, and I am often asked whether SMSFs can purchase house and land packages. Not only would the SMSF hopefully achieve some long term capital gain, it would also be entitled to claim some depreciation on the new asset as it ages. I always clarify first whether my clients want to purchase a house and land package or purchase a vacant block of land and then build a house on it. What is the difference? It can make a huge difference in the SMSF world, especially when there are borrowings involved.

Purchase as a single acquirable asset

An SMSF can borrow money to purchase a house and land package as long as it is purchased together in the one transaction as a single acquirable asset where the asset is identified up front as vacant land with a completed house on it.

But if an SMSF purchased a block of land with borrowings and then later built a house on the land, this would not be allowed under the limited recourse borrowing arrangement (LRBA). The superannuation law does not allow the single acquirable asset, in this case the block of land, to be improved (by building a house on it) while the loan remains outstanding. There is a very good reason for this.

The borrowing rule is referred to as a limited recourse borrowing arrangement. It means the lender’s rights, on any default on the borrowing by the SMSF, are limited to the single asset acquired under the arrangement. This means, the lender does not have any claim over any of the SMSF’s other assets. The borrowing is quarantined to the single acquirable asset. The law is designed to protect the remaining assets within the SMSF in the event of its default.

So, if an SMSF borrows to purchase a block of land and later builds a house on the land, and then due to some unfortunate financial circumstances cannot repay the loan, the lender will take possession of the asset – which is now a property consisting of a house and land. The money that the SMSF spent building the house on the vacant land is lost as it cannot be recovered from the lender. To make matters worse, the SMSF has also contravened the LRBA and would be in trouble with the Tax Office.

Make sure the SMSF complies

The trustees of the SMSF must ensure that:

  • they identify up front that the single acquirable asset is the land with a completed house on it
  • the lender’s security on the borrowing is at all times over the land and the completed house
  • the LRBA with the lender allows for multiple draw-downs for the deposit, progress payments and the final payment at settlement.

House and land packages can offer investment opportunities for SMSFs, but if they don’t comply with the law, the investment could end up being a costly mistake.

 

Monica Rule is an SMSF Specialist Adviser and the author of ‘SMSFs and Properties’. See www.monicarule.com.au. This article is for general education purposes only and does not consider the personal circumstances of any investor.

 

RELATED ARTICLES

Heed my problems borrowing in my SMSF

Oh dear, not another glitch with borrowing in SMSFs

Watch SMSF borrowing rules for separate assets

banner

Most viewed in recent weeks

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Latest Updates

Shares

Why the ASX may be more expensive than the US market

On every valuation metric, the US appears significantly more expensive than Australia. However, American companies are also much more profitable than ours, which means the ASX may be more overvalued than most think.

Economy

No one holds the government to account on spending

Government spending is out of control and there's little sign that Labor will curb it. We need enforceable rules on spending and an empowered budget office to ensure governments act responsibly with taxpayers money.

Retirement

Why a traditional retirement may be pushed back 25 years

The idea of stopping work during your sixties is a man-made concept from another age. In a world where many jobs are knowledge based and can be done from anywhere, it may no longer make much sense at all.

Shares

The quiet winners of AI competition

The tech giants are in a money-throwing contest to secure AI supremacy and may fall short of high investor expectations. The companies supplying this arms race could offer a more attractive way to play AI adoption.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Infrastructure

Renewable energy investment: gloom or boom?

ESG investing has fallen out of favour with many investors, and Trump's anti-green policies haven't helped. Yet, renewables investment is still surging, which could prove a boon for infrastructure companies.

Investing

The enduring wisdom of John Bogle in five quotes

From buying the whole market to controlling emotions, John Bogle’s legendary advice reminds investors that patience, discipline, and low costs are the keys to investment success in any market environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.