How Does Buying Commercial Property Through an SMSF Work?

Why is this a particularly live question right now?

Because as of 10 August 2026, business real property is the only class of real property a super fund can still borrow to buy.

Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Act No. 49 of 2026) amended section 67A of the Superannuation Industry (Supervision) Act 1993 — the provision that creates the LRBA exception to super’s general prohibition on borrowing — to require that where a new arrangement acquires real property, that property must be business real property within the meaning of section 66. The Act received Royal Assent on 26 June 2026 and Schedule 5 commenced 45 days later.

Three things about that change are worth keeping straight. It is not a ban on SMSFs owning residential property — a fund with the cash can still buy residential outright. It operates prospectively: arrangements entered into before commencement are unaffected, and commentary on the ATO's guidance indicates refinancing an existing LRBA remains available without the asset needing to be business real property. And it didn't create the commercial pathway described below — that has existed for as long as the section 66 and section 71 exceptions have. What the change did was remove the alternative.

How should the recent-law sources be read?

The Federal Register and ATO primary sources have now been independently found, but the law and guidance are recent enough that the details still need professional confirmation.

This guide draws on the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Cth), Act No. 49 of 2026, as registered on the Federal Register of Legislation; the Parliament of Australia record of the Bill's passage; the Superannuation Industry (Supervision) Act 1993 and Regulations; and Australian Taxation Office material including SMSF Ruling SMSFR 2009/1 on the meaning of business real property and ATO guidance on non-arm's length income. It also draws on Australian superannuation, legal, accounting and finance commentary including the SMSF Association, SMSF Adviser, BDO, SuperGuide, Grow SMSF, SMSF Australia, Access Super Audit, BlueRock, ADLV Law, Liston Newton, Everstone Finance, UniFi Capital, Legal Consolidated, Propti, iCare Super and ESUPERFUND.

The Federal Register and ATO primary sources have now been independently found for this guide. The points most worth independent verification before relying on any of them are the exact wording and placement of the section 67A amendment; the in-super tax rates and the CGT discount as they apply in the current year; the transfer balance cap and the additional tax arrangements for large balances, which have moved repeatedly and are stated here only in general terms for that reason; the precise NALI consequence of below-market related-party rent; the scope and conditions of the section 71(g) in-house asset exception; and every SMSF commercial lending figure, which are ranges published by brokers and lenders rather than confirmed policy from any specific lender.

Superannuation law, ATO guidance and lender policy all change, and the LRBA legislation referred to here commenced only weeks before the date of publication. This guide is general information only and is current as at the date of publication.

What counts as business real property?

The property must be used wholly and exclusively in one or more businesses; “commercial” is a market description, not the statutory test.

The definition sits in subsection 66(5) of the SIS Act, and the ATO's interpretation of it is set out in ruling SMSFR 2009/1. It turns on a single test: an eligible interest in real property where the property is used wholly and exclusively in one or more businesses.

It's about use, not labels. A property doesn't qualify because it's zoned commercial, marketed as commercial, or treated as commercial security by a lender. It qualifies because of what is actually done on it. “Commercial” is a market description; business real property is a statutory test.

“Wholly and exclusively” is strict. Other use generally has to be minor, insignificant or trifling. There's a carve-out for primary production land, where a dwelling can be disregarded within a prescribed area limit provided the dominant use remains the farming business. Mixed-use property — a shop with a flat above it — is a specialist question, not a guide question.

It has to keep qualifying. Commentary on the ATO's guidance describes the business use requirement as applying for the life of an LRBA, not only at entry. Separately, the section 71 in-house asset exception depends on the property continuing to meet the definition: if a related-party tenant stops trading, or private use creeps in, the exception can fall away and the asset can become an in-house asset. That's an ongoing obligation, not a one-off hurdle.

Why do people look at this structure at all?

The commonly cited characteristics are rent flowing into the fund, superannuation tax settings, separation from the operating business, gearing and asset diversification — and each comes with a corresponding limitation.

What follows are the rationales most commonly cited in Australian professional commentary, each with the limitation that sits directly against it. They're presented as characteristics of a mechanism, not as reasons for anyone to do anything.

Rent leaves the business and lands in the fund, rather than with a landlord. This is the one that gets cited most. Where a member's business occupies premises the fund owns, the rent is an ordinary business expense on one side and fund income on the other — so money that would otherwise leave the business permanently accumulates inside the member's retirement savings instead. Against it: the same arrangement concentrates a large share of retirement savings in a single illiquid asset, and ties that asset to the fortunes of the business paying the rent. If the business struggles, the fund's tenant struggles at the same moment. Two risks that were separate become one.

Earnings are taxed in the superannuation environment. Fund earnings are generally taxed at 15% in accumulation phase, and capital gains on assets held longer than twelve months attract a one-third discount, which is commonly described as an effective 10% rate. In retirement phase, earnings supporting a pension are generally exempt. Against it: this is a feature of superannuation generally, not something property does, and it is not unconditional. The amount that can be moved into retirement phase is capped by the transfer balance cap; additional tax arrangements apply to members with large total superannuation balances; and tax settings change. A structure that depends heavily on a current tax setting carries the risk that the setting moves. None of this can be assessed without a tax professional looking at an actual position.

The premises sit outside the operating business. Holding premises in a fund rather than in a trading entity separates the property from the business's commercial risk, and superannuation assets carry some protections in insolvency that assets held personally don't. Against it: this is legal territory rather than property territory, the protections are not absolute, and there's a real trade-off — fund assets cannot be used as security for business borrowing, because that would breach the sole purpose test. A business owner who puts the premises in the fund gives up the ability to borrow against them for the business. For a business that expects to need that lever, that is a material cost, not a footnote.

An LRBA allows a fund to acquire an asset larger than its cash balance. Gearing is gearing: it lets a fund buy something it couldn't buy outright, and magnifies the result in both directions. Against it: SMSF commercial lending is a distinct and generally more conservative channel than ordinary commercial lending. Published maximum LVRs commonly sit around 60–75%, implying deposits of roughly 30–40% plus costs; lenders commonly expect a minimum fund balance (published figures range widely, from around $200,000 at the low end to $400,000–$500,000 in some commentary) and a retained cash buffer after settlement to meet repayments, insurance, expenses and any pension payments. The major banks have largely exited this lending, so the lender pool is small and pricing reflects that. Guide 04 covers commercial LVR mechanics generally — SMSF lending is tighter than the figures there.

It diversifies a fund holding mostly cash and shares. Adding a different asset class to a portfolio is a recognised reason to hold property. Against it: in practice, a geared commercial property frequently does the opposite, becoming the dominant asset in the fund. The investment strategy requirements in the SIS Regulations — which require trustees to consider diversification, liquidity, and the fund's ability to pay benefits as they fall due — exist partly because of that pattern, and the ATO has publicly raised concerns about funds where a single asset dominates.

What if the property is not owner-occupied?

It is an ordinary commercial property investment with an additional compliance layer on top.

Every risk that applies to commercial property generally still applies: vacancies measured in months rather than weeks, outgoings reverting to the owner when the tenant leaves, and a valuation that falls when the income stops because commercial property is valued by capitalising income. A prolonged vacancy can also create compliance uncertainty, because a property with no business being conducted on it may stop meeting the business real property test.

What does “arm’s length” actually require?

A related-party lease needs genuine market rent, proper commercial terms and rent that is actually charged, paid and enforced.

More than most people expect, and this is the point where the structure most often goes wrong.

Section 109 of the SIS Act requires trustees to deal at arm's length, or on terms no more favourable to the other party than arm's length would produce. For a related-party lease that means genuine market rent, a written and legally enforceable lease with ordinary commercial terms — term, rent reviews, outgoings, make-good — and rent that is actually charged, actually paid, and actually enforced.

The consequence of getting it wrong is disproportionate. Commentary on the non-arm's length income rules is consistent that where a related party pays below-market rent, the entire rental income can be treated as NALI and taxed at 45%, rather than only the shortfall. The protection described in professional commentary is independent evidence — a market rent assessment obtained before the lease is executed and refreshed at review. An informal arrangement between a fund and a member's own business is exactly what these rules are built to catch.

How is it actually done?

The structure needs licensed advice, deed and strategy checks, property and lease assessments, correctly sequenced borrowing documents, finance, valuations and ongoing compliance.

In general terms, and as a description of a process rather than instructions for anyone’s fund:

• Licensed advice first. Whether an SMSF is appropriate at all, and whether this asset suits the members’ retirement objectives, is a financial advice question that precedes every property question.
• Check the deed and the investment strategy. The trust deed has to permit the acquisition and, if relevant, borrowing. The investment strategy has to be updated to address property as an asset class, the illiquidity it introduces, and how the fund will keep meeting its liabilities.
• Confirm business real property status for the specific property. On its actual use, assessed by someone qualified to assess it — not on the listing description.
• Establish the holding trust before settlement, if borrowing. An LRBA requires a separate holding trust (often called a bare trust) with its own trustee to hold legal title until the loan is repaid. Sequencing matters — commentary is emphatic that the deed must be executed before settlement, and stamp duty consequences can follow from getting it wrong.
• Arrange finance through an SMSF lender or a broker who works in the channel. Serviceability is assessed on fund income — rent plus contributions — against the conservative parameters above.
• Get independent valuations. Market value of the property where it is being acquired from a related party, and a market rent assessment before any related-party lease is signed.
• Document and operate the lease properly, then keep it that way: annual valuations, an independent audit, and an arrangement that still looks arm’s length in year five.

Which professionals are involved?

A licensed financial adviser, SMSF-specialist accountant or administrator, solicitor, valuer and SMSF lender or broker each have a distinct role.

The professionals involved are a licensed financial adviser, an SMSF-specialist accountant or administrator, a solicitor for the holding trust deed and contracts, a valuer, and an SMSF lender or broker. That list isn't padding. It's a fair indication of how much structure sits around a transaction that looks, from the outside, like buying a shed.

Where should someone go next?

Start with the licensed professionals who can assess the SMSF and compliance questions before considering the property on its merits.

The order matters here more than usual.

A licensed financial adviser on whether an SMSF is appropriate at all, and on anything touching retirement strategy, contributions or fund structure. This is regulated advice under the Corporations Act and it requires a licence Kallea does not hold.

An SMSF-specialist accountant on the compliance mechanics — the deed, the investment strategy, business real property status for a specific property, the arm’s length and NALI questions, and the tax consequences of any of it.

A solicitor on the holding trust documentation and the contracts.

Kallea partners with licensed financial advisers and SMSF-specialist accountants for exactly this reason. Where Kallea sits is the layer after those decisions are made: understanding a commercial property on its merits — the lease, the tenant, the building, the market — and whether it fits a strategy that has already been settled with the right professionals. We don't give the superannuation advice. We make sure the question reaches someone who can.

If you'd like a picture of your own position before any of those conversations, Kallea's investment readiness assessment is a general starting point. It doesn't cover superannuation.