Can You Get an SMSF Property Loan If You Made No Super Contributions Last Year?

SMSF Property Loan Question

An SMSF may still qualify for a property loan when members made no contributions in the previous financial year. Learn how lenders assess future contributions, self-employed income, rent and fund assets.

A year without superannuation contributions does not automatically prevent a self-managed super fund from borrowing to buy an investment property.

It does make the application more complicated.

Most SMSF lenders want evidence that the fund will have enough reliable income to meet its loan repayments, property expenses and ongoing administration costs. A history of regular employer or personal contributions is one of the clearest ways to demonstrate this.

Where those contributions are missing, the lender needs another way to establish that future contributions are realistic and sustainable.

This commonly occurs when a member:

• recently moved from PAYG employment to self-employment;
• changed employers;
• established a new SMSF;
• temporarily stopped making voluntary contributions;
• retained earnings in a business rather than contributing to super;
• took parental or extended leave; or
• received contributions into a retail fund rather than the SMSF.

Several lender policies provide a pathway for these situations, but an accountant’s letter alone will not necessarily be enough.

How do lenders calculate SMSF borrowing capacity?

An SMSF loan is normally assessed using the income and expenses of the fund.

Depending on the lender, acceptable fund income may include:

• compulsory employer super contributions;
• established voluntary contributions;
• proposed additional member contributions;
• rent from the property being purchased;
• rent from existing SMSF properties;
• interest or dividends earned by fund investments; and
• other recurring investment income held within the SMSF.

The lender then allows for expenses such as:

• the proposed SMSF loan repayment;
• existing SMSF debts;
• property expenses;
• insurance;
• accounting and audit costs;
• property management fees; and
• other fund commitments.

Some lenders assess only the income already received by the SMSF. Others allow additional future contributions where each member demonstrates the personal capacity to make them.

Related research: Can a Fully Maintained Company Car Increase Your Home Loan Borrowing Capacity?

Is a contribution history always required?

A contribution history is usually preferred, but it is not an absolute requirement under every lender policy.

Four lender policies reviewed contain a dedicated SMSF contribution policy:

• RedZed;
• Firstmac;
• ORDE Financial; and
• Pepper Money.

Each takes a different approach to missing, irregular or proposed future contributions.

RedZed

RedZed’s lender policy allows both:

• servicing based on the fund’s existing income; and
• servicing that includes additional proposed member contributions.

Additional contributions may be considered where the member’s capacity to make them can be verified from continuing employment or business operations.

For a self-employed member, the lender policy requires at least 24 months of ABN registration. The lender may also request evidence that the business remains active.

Documents may include:

• 12 months of SMSF or retail super statements;
• an employment letter or current payslip for PAYG members;
• ABN information for self-employed members; and
• an additional member contributions declaration.

The policy also states that alt-doc pricing may apply where the only contributions made during the previous 12 months were deposited in the three months immediately before the application.

This is intended to address situations where contributions appear to have been made shortly before applying solely to create a lending history.

Firstmac

Firstmac’s lender policy allows 100% of qualifying compulsory contributions to be included in SMSF servicing.

Voluntary contributions may also be considered where they are regular and supported by evidence.

Where voluntary contributions have not been regular, or need to increase to make the loan affordable, each member must demonstrate their personal capacity to make the required contribution.

This means an absent contribution history may not end the application. The lender may instead assess the member’s income, personal expenses and liabilities.

Firstmac’s policy also allows part of the proposed property’s rental income to be used. However, projected income from future investments outside the SMSF cannot be used simply because the member expects to earn it later.

ORDE Financial

ORDE’s lender policy generally seeks confirmation of 12 months of contributions through documents such as:

• retail or industry fund statements;
• SMSF cash management account statements; or
• SMSF financial statements.

The policy provides an alternative where contribution history is not evident or is insufficient to support servicing.

For a self-employed member, this can involve either full-doc or alt-doc income verification.

Full-doc evidence may include the most recent year’s:

• company financial statements;
• personal tax return; and
• notice of assessment.

The alt-doc pathway may use:

• an ORDE accountant’s letter;
• six months of business activity statements; or
• six months of business bank statements.

This is particularly relevant where someone has recently moved from PAYG employment to self-employment and therefore has limited recent contributions.

Pepper Money

Pepper’s lender policy allows SMSF servicing to include:

• rental income from the security property;
• compulsory member contributions;
• additional contributions supported by recurring income; and
• investment returns earned by the SMSF.

Where additional contributions are required, the member’s PAYG or self-employed income must be verified.

For a self-employed alt-doc application, the lender policy requires:

• at least 24 months of ABN registration;
• at least 12 months of GST registration;
• a declaration of financial position; and
• one accepted alternative income document.

That document may be:

• six months of business bank statements;
• six months of BAS; or
• a lender-formatted accountant’s letter.

The policy also requires the SMSF to have at least $150,000 in assets at the time of application, although the fund is not subject to a separate post-settlement liquidity test under that particular policy.

Is an accountant’s letter enough?

An accountant’s letter can be useful, but it does not solve every part of the application.

Under some alt-doc lender policies, an accountant’s letter can help verify:

• current business turnover;
• current taxable income;
• the business’s trading status;
• the member’s ability to make additional contributions; and
• whether the proposed contribution appears sustainable.

It does not necessarily prove:

• that contributions have actually been made;
• that the fund has enough cash to complete the purchase;
• that the business can afford the contribution after its other commitments;
• that the contribution complies with superannuation and tax rules; or
• that the SMSF will retain enough money after settlement.

The lender may still require BAS, business bank statements, tax returns or SMSF statements.

An accountant’s letter should also use the lender’s required wording. A general letter stating that the client “can afford the loan” is unlikely to satisfy a detailed income-verification policy.

What if the member moved from PAYG to self-employed?

A move from PAYG employment to self-employment commonly explains why contributions stopped.

While employed, the member may have received compulsory employer contributions. After starting a business, those automatic payments may no longer appear in the same way.

That does not mean the business owner has no capacity to contribute. The lender will usually need to establish:

• how long the business has operated;
• the current revenue and profitability;
• whether the business has tax or other debts;
• the member’s personal drawings or salary;
• how much the member proposes to contribute;
• whether the proposed contribution is within the member’s financial capacity; and
• whether the contribution can continue after the property is purchased.

The ATO permits individuals to make personal super contributions, subject to the applicable contribution and deduction rules. Personal contributions can be made in addition to compulsory employer contributions.

The borrower should obtain tax advice before making a large contribution purely to support a finance application.

Related research: Can You Get a Home Loan with Simple Self-Employed Verification?

Does making a lump-sum contribution before applying help?

It may help demonstrate that the fund has received money, but it does not automatically establish an ongoing contribution history.

A lender may ask:

• where the lump sum came from;
• whether it can be repeated;
• whether it was funded by savings or debt;
• whether the member has enough personal income to continue contributing;
• whether the contribution complies with applicable caps; and
• why no contributions were made earlier.

One lender policy specifically applies different pricing where the only contributions during the previous 12 months were made in the final three months before the loan application.

Making a last-minute contribution without understanding the lender’s servicing method can therefore create little benefit.

Can rental income make up for missing contributions?

Rental income from the proposed property can form a significant part of SMSF servicing.

The lender will normally use only a percentage of the expected rent to allow for:

• vacancy;
• property management fees;
• repairs;
• rates;
• insurance; and
• other ownership costs.

For example, if the property is expected to rent for $700 a week, the lender may use a reduced figure rather than the full $36,400 annual rent.

A strong rental return may reduce the amount of member contributions required, but it rarely removes every servicing requirement.

The fund must still meet the loan repayments during vacancies or periods of unexpected expenditure.

Can income outside the SMSF be used?

A member’s personal or business income is not usually inserted directly into the SMSF servicing calculation as though it belongs to the fund.

Instead, some lenders use that income to determine whether the member can afford additional contributions.

This creates two separate assessments:

1. Can the SMSF afford the loan using its rent, contributions and investment income?
2. Can the member personally afford to make the additional contribution after paying their own living expenses and debts?

A member with strong business income may still fail the second assessment if they have substantial personal home loans, credit cards, tax debts or family expenses.

What if the SMSF is newly established?

A newly established SMSF may not have a full year of its own contribution history.

Some lender policies allow the applicant to provide statements from the member’s previous retail or industry super fund.

The lender may also require:

• evidence of rollovers into the SMSF;
• the SMSF trust deed;
• a corporate trustee;
• the bare trust or holding trust documents;
• an SMSF bank account;
• an investment strategy;
• details of all fund members;
• current fund assets;
• evidence of proposed contributions; and
• the property contract and expected rent.

An SMSF must keep its money and assets separate from the personal or business money of its members. The ATO states that an SMSF requires a dedicated bank account to receive contributions, process rollovers and pay fund expenses.

Are there minimum SMSF balance requirements?

Some lender policies specify a minimum fund balance or asset position.

Within the lender policies reviewed:

• ORDE requires a minimum SMSF balance of $150,000;
• Pepper requires at least $150,000 in SMSF assets;
• Firstmac requires sufficient completion funds and liquid assets equal to a percentage of total SMSF debt after settlement; and
• RedZed requires a reserve based on several months of SMSF loan repayments.

These requirements are separate from servicing.

An SMSF could have enough income to meet the loan repayments but still be declined because too much of the fund’s balance would be used for the deposit and purchase costs.

Example: self-employed member with no contributions last year

Consider an SMSF with one member who recently left PAYG employment and started a consulting business.

The member:

• made no super contributions during the previous financial year;
• has operated the business under an ABN for three years;
• is registered for GST;
• has six months of consistent business turnover;
• wants to buy a residential investment property;
• intends to make regular contributions from business income; and
• expects the property to generate rent.

A lender with a strict requirement for 12 months of actual contributions may not accept the application.

A lender with an additional-contribution or alt-doc pathway may assess:

• six months of BAS or business bank statements;
• an accountant’s letter;
• the member’s personal commitments;
• the proposed contribution;
• the expected rent;
• the SMSF’s current asset balance; and
• the fund’s remaining cash after settlement.

The absence of last year’s contributions remains relevant, but it may be explained and supported rather than treated as an automatic decline.

Related research: Self-Employed Home Loans: Which Australian Lenders May Accept 1-Year Financials, 1-Year ABNs or Alt Doc Income?

What documents should be prepared?

A self-employed SMSF applicant with limited recent contributions may need:

SMSF documents

• SMSF trust deed and variations;
• corporate trustee documents;
• bare trust or holding trust deed;
• SMSF bank statements;
• retail or industry fund statements;
• SMSF financial statements and tax returns;
• current investment strategy;
• evidence of rollovers;
• member contribution records; and
• details of existing fund investments.

Member income documents

• personal tax returns;
• notices of assessment;
• company or trust financial statements;
• BAS;
• business bank statements;
• accountant’s letter;
• ABN and GST registration history; and
• evidence of personal debts and living expenses.

Property documents

• contract of sale;
• rental appraisal or lease;
• valuation;
• evidence of deposit and costs; and
• details of property expenses.

Does the SMSF structure need to be established before signing?

SMSF borrowing generally needs to be completed through a compliant limited recourse borrowing arrangement.

Under the legislation, the borrowed money must be applied towards the acquisition of a single acquirable asset, with the asset held under the required limited-recourse structure.

The intended purchaser and holding-trust structure should be reviewed before the contract is signed. Correcting an incorrectly prepared purchase contract can create legal, stamp duty, finance and compliance issues.

The main point

Missing one year of SMSF contributions does not necessarily prevent the fund from obtaining a property loan.

The strongest applications explain why contributions stopped and demonstrate how future repayments will be supported.

Depending on the lender policy, this may involve:

• evidence of current self-employed income;
• BAS or business bank statements;
• an accountant’s letter;
• an additional contribution declaration;
• proposed rental income;
• sufficient SMSF assets; and
• evidence that the member can personally afford the future contributions.

The lender must be selected around the actual contribution history and income evidence rather than rate alone.

General information disclaimer

This article contains general information only and does not take into account your objectives, financial situation or needs. It does not constitute financial, taxation, legal, superannuation or credit advice.

SMSF borrowing involves complex legal, taxation and compliance obligations. Lender policies, servicing methods, contribution requirements, maximum LVRs and document requirements can change without notice. Loan approval is subject to the lender’s complete assessment and the policy applying at the time of application.

Before establishing an SMSF borrowing arrangement, signing a property contract or making additional super contributions, obtain advice from appropriately qualified financial, legal, taxation and credit professionals.