One of the more frequent questions we receive from SMSF trustees is whether the fund can buy vacant land or enter into a house and land package. The short answer is: it depends on how the purchase is structured and funded. The distinction between using the fund’s own cash and borrowing through an LRBA makes a significant difference to what is and is not permitted.
Can an SMSF Buy Vacant Land?
Yes, an SMSF can purchase vacant land using its own cash. If the fund has sufficient assets to acquire the land outright without borrowing, there are no SIS Act restrictions that prevent it. The purchase must still satisfy the sole purpose test, meaning the land must be held as an investment for the purpose of providing retirement benefits to fund members.
The fund cannot acquire residential vacant land from a related party. It can, however, purchase residential or commercial vacant land from an unrelated third-party vendor on the open market.
What changes significantly is whether the fund needs to borrow to make the purchase.
The LRBA Restriction: Why You Cannot Borrow to Buy Vacant Land
This is the critical constraint. If your SMSF needs a loan to purchase vacant land, an LRBA cannot be used.
The reason is technical but important. Under the SIS Act, an LRBA must be used to acquire a “single acquirable asset.” The ATO’s definition of a single acquirable asset requires that the asset has independent legal title and can be transferred without reference to any other transaction. Vacant land, on its own, does not produce income and cannot be categorised as a single acquirable asset in the way that an existing dwelling or commercial building can be.
In practice, specialist SMSF lenders do not offer LRBA products for vacant land purchases. There is no compliant mechanism within the LRBA framework to borrow for land alone.
If your SMSF does not have sufficient cash to purchase land outright, the purchase cannot proceed as a land-only acquisition using borrowed funds. Consider speaking to our team about your fund’s current SMSF borrowing capacity to understand what is achievable.
Borrowing via an LRBA to build would shift superannuation from long-term investing into leveraged property development, which isn’t the policy objective of the superannuation system. An LRBA is intended to help an SMSF acquire a long-term investment asset, not to finance property development or substantially change the nature of the asset using borrowed funds.
Commercial Land: A Different Set of Rules
For commercial land purchases, the position is somewhat more flexible, particularly where the land will be used in a related party’s business.
An SMSF can purchase vacant commercial land from an unrelated party using its own cash. If the land will be developed or used as business real property by a fund member’s business, the transaction must still meet the BRP rules under the SIS Act.
Borrowing to purchase commercial land outright, without an existing structure on it, faces the same LRBA constraints as residential land. However, where commercial land is purchased as part of a single-contract transaction that includes an existing or to-be-constructed commercial building, the lending options may be broader. This is a situation that requires case-by-case assessment with a specialist broker.
For established commercial premises, whether purchased for lease to a third party or lease-back to a member’s business, the full suite of SMSF commercial property loan options applies. Similarly, established residential investment properties remain the most straightforward path for SMSF trustees seeking to use borrowed funds, as covered in our SMSF residential loans section.
For trustees exploring their options across both property types, our SMSF property investment guide provides a comprehensive overview of what the fund can hold and how each structure works.
Frequently Asked Questions
Can an SMSF buy vacant land and then build on it?
An SMSF can purchase vacant land using its own cash and subsequently fund construction from the fund’s cash reserves. However, it cannot borrow under an LRBA to purchase vacant land, and it cannot use borrowed funds to construct a dwelling on land already held by the fund. Construction constitutes an improvement, which is prohibited under the LRBA framework.
What is the one-contract rule for SMSF house and land packages?
The one-contract rule refers to the ATO’s position that a house and land package structured as a single contract, delivering a completed property at settlement, may qualify as a single acquirable asset under an LRBA. Where land and construction are under two separate contracts, the LRBA cannot fund both elements. Lenders in this space are limited and specialist advice is required before entering any such arrangement.
Can an SMSF buy a block of land from a family member?
No, if the land is residential. The SIS Act prohibits an SMSF from acquiring residential property from related parties. Commercial land may be acquired from a related party if it qualifies as business real property and all transactions are conducted at arm’s length at market value.
Is vacant land a good investment for an SMSF?
Vacant land produces no rental income, which means the fund receives no income stream to offset loan repayments or ongoing costs such as rates and insurance. This is one of the reasons the LRBA framework does not accommodate vacant land: lenders require income-producing security. Trustees should weigh this carefully against the fund’s liquidity obligations, particularly if members are approaching retirement.
Not sure whether your SMSF can fund a land or property purchase? Use our SMSF loan calculator to estimate your fund’s borrowing capacity, or book a strategy call with our team for a personalised assessment.