Avoid These 7 Mistakes When Buying Commercial Property

If you run your own research consultancy or plan to expand into a commercial premises, buying that property through your SMSF is still a viable option.

Recent changes to superannuation law have closed the door on using borrowed funds to acquire residential property through a Self-Managed Super Fund, but commercial property that meets the business real property definition remains available through a Limited Recourse Borrowing Arrangement. The distinction matters because the legislative framework treats these property types differently, and the compliance requirements are specific.

What Changed in August 2026 and What It Means for Commercial Property

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 prohibits new Limited Recourse Borrowing Arrangements for residential property from approximately 10 August 2026. Commercial property used wholly and exclusively in a business remains unaffected. The definition of business real property under section 66 of the SIS Act determines whether a property qualifies. This means a laboratory space, office premises, or warehouse used in your research work could be purchased with an SMSF commercial loan, but an apartment or house could not.

Research pharmacists who previously considered buying residential property through super will need to adjust their strategy. Those who already hold residential property under an LRBA entered before the ban took effect are protected by grandfathering provisions.

The Business Real Property Test You Need to Pass

A property qualifies as business real property when the land and buildings are used wholly and exclusively in one or more businesses. The business does not need to be carried on by the entity holding the property. A research pharmacist could lease commercial premises to their own consultancy or to an unrelated tenant running any lawful business, and the property would still meet the definition as long as the actual use is business-related at the time of acquisition.

If a property contains a dwelling, it can still qualify if the dwelling occupies no more than 2 hectares and the main use of the whole property is not domestic or private. A mixed-use property where the main use is residential or private does not qualify. Vacant land not currently used in a business may also fail the test.

How a Limited Recourse Borrowing Arrangement Operates

Under an LRBA, the borrowed funds must be used to acquire a single asset, or a collection of identical assets with the same market value that can be treated as a single asset. The asset is held in a separate bare trust, and the SMSF acquires a beneficial interest. Legal ownership transfers to the SMSF once the loan is repaid. If the loan defaults, the lender's recourse is limited to the asset held in the trust. Investment returns from the property flow to the SMSF during the loan period.

Borrowed funds can cover the purchase price, loan establishment costs, and stamp duty. They cannot be used to improve an existing asset or to refinance a property already owned by the fund. Different rules apply to arrangements entered between 24 September 2007 and 6 July 2010.

The Single Asset Rule and Why It Catches Multi-Title Properties

Multiple real property titles cannot be acquired under a single LRBA. Consider a scenario where a research pharmacist identifies two adjoining warehouse units on separate titles. Even if both are substantially similar and used for the same purpose, they cannot be purchased together under one borrowing arrangement. The exception applies only where the properties are distinctly identifiable as a single asset, meaning they have equal market value and are bought and sold together as one unit. In practice, this exception rarely applies to real property.

If you want to acquire multiple commercial properties through your SMSF, each one requires a separate LRBA with separate loan documentation and a separate bare trust. This increases administrative complexity and cost.

Leasing to Your Own Business and the Arm's Length Requirement

Business real property can be leased between the SMSF and a related party without triggering the in-house asset rules. A research pharmacist operating a consultancy could purchase a commercial premises through their SMSF and lease it back to their own business. The lease must be made on arm's length terms at market value. This means the rent charged must reflect what an independent landlord would charge an independent tenant for comparable premises in the same location.

Where the lease is not on arm's length terms, the property may be treated as an in-house asset subject to the 5 percent limit, or income from the arrangement could be assessed as non-arm's length income and taxed at the highest marginal rate. The ATO publishes safe harbour interest rates for SMSF LRBAs under Practical Compliance Guideline PCG 2016/5, and these rates are updated annually.

Deposit and LVR Limits for SMSF Commercial Loans

Lenders typically require a deposit of at least 30 to 35 percent for an SMSF commercial loan, which means the maximum loan-to-value ratio is usually between 65 and 70 percent. Some lenders will go higher depending on the property type, location, and tenant profile. The deposit must come from existing SMSF assets or from contributions made to the fund. Contributions are subject to caps, which from 1 July 2026 are $32,500 per annum for concessional contributions and $130,000 per annum for non-concessional contributions.

If you need to build the deposit over several years, the bring-forward arrangement allows non-concessional contributions of up to $390,000 over three years where your total superannuation balance on 30 June of the previous year was below $1.84 million. The fund cannot borrow the deposit or use borrowed funds to cover settlement costs beyond the initial loan amount.

Division 296 Tax and How It Affects Large Balances

From 1 July 2026, where a member's total superannuation balance at the end of the financial year exceeds $3 million, Division 296 tax of 15 percent applies to the proportion of earnings attributable to the amount above that threshold. Where the balance exceeds $10 million, an additional 10 percent Division 296 tax applies to the proportion of earnings above that threshold. Outstanding LRBA amounts entered into on or after 1 July 2018 are included in a member's total superannuation balance in certain circumstances, including where the LRBA is with an associate of the fund.

This matters for research pharmacists with substantial superannuation balances who are considering a commercial property purchase. The outstanding loan balance may be counted when calculating whether you exceed the thresholds, and rental income from the property will be included in the earnings calculation.

What Happens If You Want to Refinance an SMSF Commercial Loan

Refinancing an SMSF commercial loan is permitted as long as the refinanced loan relates to the same single asset, maintains the limited recourse character of the original arrangement, and meets arm's length terms. The property cannot change, and the borrowing cannot be extended to cover improvements or a different asset. The lender's recourse must remain limited to the asset held in the bare trust.

A related party may provide a personal guarantee to the lender, but their recourse must also be limited to the asset under the arrangement and not to any other SMSF assets. Genuine offset accounts offered by an authorised deposit-taking institution are not treated as a borrowing or a charge over fund assets under existing ATO guidance.

Call one of our team or book an appointment at a time that works for you. We work with research pharmacists who want to use their super to acquire commercial property and can connect you with SMSF specialists and lenders who understand the compliance requirements.

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