Can You Install Solar Panels on an SMSF Property with an LRBA?

If your SMSF has invested in property using a Limited Recourse Borrowing Arrangement (LRBA) or Bare Trust, you might be wondering whether you can make improvements—like adding solar panels.

It's a common question and a good one too. With rising energy costs and a growing interest in sustainability, solar is an attractive option. But SMSFs come with strict rules, especially when borrowing is involved.

Here’s what you need to consider before making any solar upgrades to an LRBA property.

Repairs and Improvements - the difference matters

The first thing to understand is the difference between a repair and an improvement. Repairs and maintenance are generally allowed under LRBA rules, even when funded by the borrowed money. Improvements, on the other hand, are a different story.

Solar panels are considered an improvement—not a repair. That means you cannot use any of the borrowed funds from your LRBA to install them. However, if your SMSF has sufficient cash available (not part of the loan), then paying for solar panels may be allowed. The key is ensuring that the nature of the asset doesn’t change as a result of the improvement. In most cases, adding solar won’t fundamentally alter a residential property, so it’s usually okay—so long as the funding source is compliant.

Before proceeding, make sure your SMSF has enough liquid funds and that the purchase won’t lead to unintended consequences, such as altering the character of the asset or breaching borrowing rules.

The Sole Purpose Test Still Applies

Even if you’re funding the solar panels from within the SMSF correctly, the installation still needs to meet the sole purpose test. This is one of the most important principles in superannuation law. It means that everything your fund does must be for the sole purpose of providing retirement benefits to its members.

In practical terms, this means the property must be rented to unrelated third parties on commercial terms. If a member of the fund or a related party benefits in any way—such as living in the property or accessing the electricity generated from the solar system—that’s likely to be a breach of the rules. Even indirect benefits could trigger compliance issues.

So while solar panels can be a good investment feature that may attract better tenants or improve the long-term value of the property, they must not provide any present-day benefit to the members of the SMSF.

You're Going to Need a Piece of Paper For That

Like all decisions made by SMSF trustees, any move to install solar panels needs to be well-documented and justified. Start by reviewing your SMSF’s investment strategy to ensure that the upgrade aligns with your stated goals—whether that’s improving the value of fund assets, increasing rental yield, or supporting sustainable investment.

You should also hold a trustee meeting (even if you’re the only trustee) and document your decision in writing. Include the reasons for the installation, confirmation that borrowed funds won’t be used, and an acknowledgment that the sole purpose test will not be compromised. Keeping clear records is essential in case your fund is audited or questioned by the ATO.

And finally, before taking action, it’s always wise to check in with your SMSF auditor, accountant, or legal adviser. A small improvement can become a big compliance issue if handled the wrong way.

So, yes...

Yes, installing solar panels on an LRBA property may be possible—but it comes with important conditions. You need to use SMSF cash (not borrowed money), ensure no member benefits from the change, and document your decision carefully. When done right, it can be a smart move for your fund. But as with all things SMSF, caution and compliance come first.

This article is intended to provide general information only. It does not constitute financial, legal, or tax advice and should not be relied upon as such. You should consult a licensed professional or your SMSF adviser before making any decisions regarding your superannuation fund. The rules around LRBAs and property improvements can be complex, and individual circumstances may vary.