For many Australians looking to take control of their retirement savings, SMSF property investment continues to be a popular strategy. Whether it’s a residential property or a commercial space, the ability to invest in real estate through your super gives you greater flexibility and control.
But with the upcoming $3 million super tax (officially known as Division 296), some trustees are unsure about whether buying property in an SMSF is still a smart move.
The short answer?
Yes—it still makes a lot of sense for most people. The tax is unlikely to affect the majority of SMSF members, and even if it does, the impact is generally minor. In fact, you might still be better off than if you owned the same property in your own name.
Here’s what you need to know before making any big decisions
Why SMSF Property Investment Remains a Strong Strategy
When you set up an SMSF for property, you gain access to tax-effective investment opportunities that aren’t available through regular super funds. Here’s why SMSF property investment continues to be appealing:
- Super funds are taxed at just 15% on rental income
- Capital gains on property held for more than 12 months are taxed at only 10%
- You can buy commercial property through your SMSF and lease it back to your business (if done correctly)
- You may be able to borrow using a Limited Recourse Borrowing Arrangement (LRBA) under strict SMSF borrowing rules
These benefits make buying property with SMSF savings a solid option for long-term growth and retirement planning, especially when guided by experienced SMSF accountants.
The New $3 Million Super Tax—Explained Simply
From 1 July 2025, the government will introduce an additional tax on individuals with over $3 million in super.
Here’s how it works:
- It’s a 15% tax on earnings related to the amount of your super balance above $3 million
- It applies per member, not per SMSF—so if you and your spouse each have $2 million in the same fund (a total of $4 million), you’re both under the threshold
- The tax includes unrealised gains, such as increases in property value, even if you haven’t sold
This is called the Division 296 tax, and while it sounds like a big change, the actual impact for most people is minimal.
Real Example: The Tax Isn’t as Big as You Might Think
Say your balance goes from $3.5 million to $4 million over a financial year—that’s a $500,000 increase. The Division 296 tax applies to the $1 million above the cap.
The extra tax payable?
Only $18,750 (which is 15% of 25% of the $500k gain, as the over-cap portion is one-fourth of your total balance).
It’s a small amount relative to your earnings, and less than what you’d pay if you owned the same property in your own name at the top marginal rate.
Even when affected by this new rule, owning property inside your SMSF is still usually more tax-efficient than owning it in your personal name.
Yes, the Threshold Isn’t Indexed—But That Doesn’t Make It Bad
One concern is that the $3 million threshold is not indexed. That means it won’t increase with inflation, and over time, more Australians may cross the line, especially if they’ve held quality assets like SMSF real estate over many years.
But remember: neither is the tax-free threshold outside super. If you hold the same property in your personal name, you’d be taxed on every dollar earned above that threshold at your marginal tax rate, which could be as high as 47%.
People with $3 million in super will usually also have personal assets and be paying higher personal tax already. The new tax simply evens out the treatment a little.
And even then, SMSFs still enjoy lower tax on all earnings below the $3 million cap.
Why SMSF Property Investment Still Works for Mum and Dad Investors
If you’re planning to buy property with your SMSF, the new tax shouldn’t stop you. Here’s why:
- Most People Aren’t Affected
Only a small number of Australians will cross the $3 million threshold, and those who do can plan for it. The majority of SMSF members won’t pay this tax at all.
- SMSF Still Offers Tax Savings
Even with the new tax, holding real estate through your SMSF can lead to less tax overall compared to holding property in your personal name or a family trust.
- You Have Time to Plan
The Division 296 tax starts in July 2025, so now is the time to speak to your SMSF accountant, review your strategy, and model your future outcomes.
Things to Keep in Mind When Buying Property with Your SMSF
If you’re looking into SMSF property investment, here are a few things to know:
- Your SMSF can’t buy residential property from or lease to a related party, but commercial property can be leased to your own business (on commercial terms)
- You can borrow money to help fund the purchase under a Limited Recourse Borrowing Arrangement, but it must be properly structured to comply with SMSF borrowing rules
- You’ll need regular valuations, clear documentation, and strong record-keeping, which is where your SMSF accountant plays a crucial role
Final Thoughts: SMSF Property Is Still a Powerful Tool
The introduction of the $3 million super tax doesn’t change the fact that SMSF property investment remains one of the most effective ways to build wealth for retirement.
Yes, the threshold is fixed. Yes, it includes unrealised gains. But:
- Most people won’t be impacted
- The tax itself is modest when it applies
- Owning property inside your SMSF still delivers better tax outcomes compared to outside ownership
- You gain flexibility, control, and asset protection—especially with the guidance of a trusted SMSF accountant
Thinking about SMSF property investment?
Whether you’re looking to buy your first property or review your current strategy, speak to a qualified SMSF accountant. We’ll help you stay compliant, tax-effective, and on track for your long-term goals.
