How to Buy Commercial Property with Your SMSF

You can use your self-managed super fund to buy commercial property, but the loan structure works differently to a standard mortgage.

The property must be purchased through a Limited Recourse Borrowing Arrangement, held in a bare trust, and meet strict compliance rules set by the Australian Taxation Office. The lender can only claim against the property itself if something goes wrong, not the other assets in your fund. That changes how lenders assess the loan and what deposit they'll require.

Why Commercial Property Appeals to SMSF Trustees

Commercial property held in your super fund generates rental income that's taxed at a maximum of 15% while you're accumulating, or zero if you're in pension phase. Consider a warehouse owner who runs their business from a property their SMSF owns. The business pays rent to the super fund, the fund claims tax deductions on loan interest and property expenses, and the rent paid by the business becomes a tax deduction for the business itself.

You're essentially moving wealth from a structure taxed at company or personal rates into a super environment with concessional tax treatment. That difference compounds over decades. The SMSF loan must be structured correctly from the start, because errors can breach compliance rules and trigger penalties.

How a Limited Recourse Borrowing Arrangement Works

A Limited Recourse Borrowing Arrangement means the lender's claim is limited to the property being purchased, not the other assets in your super fund. The property is held in a bare trust with your SMSF as beneficiary until the loan is repaid. Once settled, the property transfers into the fund's name.

Lenders price this added risk into their terms. Most require a deposit of at least 30% to 35%, though some will lend at 70% LVR for high-quality commercial assets in strong locations. The interest rate on an SMSF commercial loan typically sits above standard commercial property loan rates, reflecting the limited recourse nature of the arrangement.

What Lenders Look for in an SMSF Commercial Loan Application

Lenders assess the fund's capacity to service the loan from rental income and member contributions. They'll review your fund's balance, contribution history, and the income the property is expected to generate. If the property will be leased to a related party, such as your own business, the lease terms need to be commercial and defendable.

The property itself must meet the sole purpose test, meaning it exists solely to provide retirement benefits to fund members. You can't use part of the building for personal purposes. A trustee looking to buy a retail shopfront for their café would need to ensure the lease, rent, and usage align with arm's length principles. The ATO watches related party transactions closely.

Structuring the Loan When You're Leasing to Your Own Business

Many SMSF commercial property purchases involve leasing the asset back to a business the trustees control. The rent must reflect market rates, and the lease should be documented formally. If the business underpays rent or the arrangement looks contrived, you risk breaching super laws.

In our experience, the most sustainable structures involve getting an independent valuation of the rent before the lease is signed, then reviewing it every few years. Lenders want to see that the rent can service the loan repayments even if the business changes or a tenant leaves. That usually means demonstrating either strong fund reserves or the ability to make additional contributions if rental income falls short.

Some lenders will also consider the broader financial position of the trustees when assessing serviceability, particularly if the property will initially be vacant or under-rented during fitout. Others take a stricter view and rely solely on fund income and balance. Working with an SMSF mortgage broker helps identify which lenders suit your specific structure.

Deposit Requirements and Where the Funds Can Come From

The deposit must come from within the super fund. You can't inject personal savings directly into the SMSF to top up the deposit unless those funds are contributed under the contribution caps. For most people, that means concessional contributions of up to $30,000 per year or non-concessional contributions up to $120,000 per year, depending on your age and total super balance.

If your fund doesn't have enough cash, you might consolidate other super accounts into the SMSF, sell existing fund assets, or wait while you build the balance through contributions. Some buyers use a combination, contributing over two financial years to stay within caps while also liquidating shares or managed funds the SMSF holds.

You cannot use a guarantor loan structure or borrow against assets outside the fund to increase your deposit. The limited recourse nature of the arrangement prohibits this.

Interest Rates and Whether to Fix or Stay Variable

SMSF commercial loan rates depend on the property type, LVR, lease status, and your fund's financial position. Variable rates give you flexibility to make extra repayments and pay the loan down faster, which matters when rental income exceeds the minimum repayment amount. Fixed rates lock in your cost, which can help with budgeting if your fund's cash flow is tight.

Most SMSF loans are interest-only for a period, then revert to principal and interest. That keeps repayments lower while you're accumulating, but you'll need a plan to either refinance or increase repayments when the interest-only term ends. The loan term is typically shorter than a residential mortgage, often 15 to 20 years, because lenders want the debt repaid or significantly reduced before trustees reach pension phase.

Compliance Risks You Need to Watch

The property can't be lived in by a fund member or related party, even temporarily. It can't be used for personal storage, as a weekend workspace, or anything that gives a present-day benefit to a member. The sole purpose test requires that every action taken by the fund is to provide retirement benefits.

If the property needs repairs or improvements, the cost must come from the fund's cash reserves or income. You can't pay for a new roof out of your personal account and claim it back later. The property must be insured in the name of the bare trust, and all expenses must flow through the correct entities.

Breach the rules and the ATO can issue penalties, remove the fund's complying status, or tax the entire fund balance at the top marginal rate. The consequences are severe, which is why most trustees work with an accountant who specialises in SMSFs and a broker who understands the lending and compliance layers.

When Refinancing Makes Sense for an SMSF Loan

Once the loan has been in place for a few years and the fund's equity position has improved, refinancing can reduce your interest rate or shift the loan structure. You might move from a 30% deposit loan to a lower rate product once the LVR drops below 60%, or switch lenders if your original lender's terms no longer suit your situation.

Refinancing an SMSF loan follows the same limited recourse rules, so the new loan must also be held in a bare trust until it's repaid. You can read more about the SMSF loan refinance process and how it differs from refinancing a standard mortgage.

If you're ready to explore whether your super fund is in a position to purchase commercial property, call one of our team or book an appointment at a time that works for you. We'll walk through your fund's balance, contribution capacity, and the properties you're considering, then connect you with lenders who understand SMSF commercial lending.

Frequently Asked Questions