For Melbourne investors watching land prices climb in the city’s outer growth corridors, the idea of using a self-managed super fund (SMSF) to secure a block is appealing.
The problem is that SMSF property rules are strict, and land sits in a nuanced corner of the legislation.
The short answer is yes, an SMSF can buy land. But the rules around what you can do with that land once it’s inside your fund don’t make it straightforward. Get it wrong and you’re looking at penalties, forced disposals or a fund that fails its sole purpose test.
Here’s what Melbourne SMSF investors need to understand before they make any land purchases:
Key takeaways
- Cash purchases are the most flexible: Buying land outright with SMSF funds is permitted and gives your fund the freedom to develop later.
- LRBAs restrict what you can do: You can borrow to buy land via a Limited Recourse Borrowing Arrangement, but you cannot build while the loan remains outstanding.
- The house and land loophole: Under certain conditions, an off-the-plan house and land package under a single contract may qualify as one acquirable asset.
- Post-repayment options expand: Once a land loan is fully repaid, your SMSF has significantly more flexibility, including the ability to build.
- ATO scrutiny is increasing: With heightened audit activity in 2025–26, compliance is critical.
Options to buy land through your SMSF
Buying land outright: The straightforward path
If your SMSF has sufficient cash or liquid assets, purchasing vacant land outright is entirely permissible under superannuation law. There are no borrowing restrictions to navigate, and the fund retains full flexibility over what happens to the land going forward.
This includes the ability to develop the land at a later stage, subject to the fund’s investment strategy and trust deed, without the complications that arise when a loan is still in play.
For investors targeting Melbourne’s growing outer suburbs, where land is still more accessible than established property, this can be a workable strategy.
The key compliance requirements still apply: the land must meet the sole purpose test (held for the retirement benefit of members), must be at arm’s length and cannot be acquired from a related party unless it qualifies as business real property.
Buying land with an LRBA: What you can and can’t do
SMSFs can borrow to purchase land through a Limited Recourse Borrowing Arrangement (LRBA), but the rules here are tighter than many investors realise.
Under an LRBA, the asset must be a single acquirable asset held in a bare trust until the loan is repaid. While vacant land qualifies, the critical restriction is that you cannot improve or build on that land while the LRBA is in place.
The ATO is explicit on this point. As outlined in its guidance on rules on assets under an LRBA, improvements that change the character of the asset are not permitted under borrowing arrangements. Building a house on vacant land if you have borrowed the money to buy it fundamentally changes the character of the asset, which means commencing construction while the loan is outstanding puts your fund in breach.
For Melbourne investors hoping to buy land through their SMSF and build dwellings on it asap, this is a significant constraint. For investors with a longer time line, buying with an LBRA may create a legitimate pathway: borrow to purchase the land, repay the loan using SMSF contributions and rental income (if the land can be leased in the interim), then build once the loan is discharged.
This staged approach can be an effective structure, but it requires disciplined cashflow planning and a clear investment strategy documented in the fund’s records. If you’re exploring this as a strategy, working with a broker who understands SMSF loans in Melbourne is a critical first step, not just for the loan, but for structuring the acquisition correctly from day one.
The off-the-plan house and land loophole
There is one scenario where building and borrowing can coexist inside an SMSF and that is with a house and land package purchase.
When a developer offers a house and land package through a single, unified contract, where land and construction are treated as one transaction, the ATO may consider the finished property (land plus dwelling) to be a single acquirable asset from the outset. This means the SMSF is effectively purchasing the completed asset, not a block of land it intends to improve.
This is a meaningful distinction. Unlike a split-contract arrangement (where land and construction are two separate agreements), a properly structured single-contract house and land deal may allow the SMSF to borrow for the full purchase.
However, this area of the rules is fact-specific, and the structure must be correct from the beginning. A dual-contract deal, even one presented as a package by a developer, does not enjoy the same treatment. This is exactly the kind of scenario where specialist SMSF lending advice is essential before you commit.
ATO audit activity and why compliance matters more than ever
The ATO has indicated it will carry out increased SMSF audit activity throughout 2025–26, with particular focus on property investments and borrowing arrangements. Funds that have used LRBAs to acquire property, including land, are squarely in scope.
Common compliance failures include:
- Improvements made to assets purchased under an LRBA and still being paid off
- Related party transactions that are classified as Not at Arm’s Length (e.g. the SMSF has purchased an investment at less than its market value)
- Investment strategies that don’t reflect the fund’s actual holdings.
Any of these can trigger penalties or, in serious cases, the fund losing its complying status.
Working with the right advisers, including a qualified SMSF accountant and a broker experienced in self-managed super fund loans can make the difference between a fund that performs and one that becomes a liability.
The bottom line for Melbourne SMSF investors
A healthy super fund gives you more control over your investing options and the potential to grow your retirement savings by investing in property. However, the rules governing how a fund can hold, finance, and eventually develop land are layered and can be confusing.
Whether you’re looking at a cash purchase, exploring LRBAs, or trying to understand whether a house and land package qualifies as a single acquirable asset, details matter. Getting specialist advice separates successful SMSF property investors from those who find themselves in an ATO audit with the wrong structure in place.
At Lend & Co, we work with SMSF investors across Melbourne to structure land and property purchases correctly from the outset. If you’re considering using your super to enter the land market, book a strategy call with a specialist SMSF broker today.
