Key Takeaways
- Since 10 August 2026, a fund can only borrow to buy real property that qualifies as business real property. That is a test of how the property is used, not of whether it is labelled commercial or residential.
- Your own business can lease the premises from your fund, provided the property is used wholly and exclusively in a business and the rent is set at market value.
- Premises you already own can be sold into the fund at market value, which residential property cannot.
- The property must qualify when the arrangement is entered into and keep qualifying for the life of the loan, so a vacant or partly private building is the risk case.
Every month, your business pays rent into someone else’s asset. Meanwhile your self-managed super fund (SMSF) holds a balance in shares and cash, and the premises you have worked from for years come up for sale.
A fund can borrow to buy commercial premises and lease them straight back to the business occupying them, an arrangement superannuation law permits for business real property and blocks for residential.
Since 10 August 2026, the field has narrowed further, and business real property is the only real property a fund can borrow to acquire under a new arrangement. Because the test turns on use rather than zoning or description, some commercial premises fall outside it and some residential-style buildings fall inside. Whether your premises meet that test is the first question an SMSF loan broker asks, because a property that fails it cannot be financed this way at all.
What Makes Premises Business Real Property
Business real property is defined in section 66(5) of the Superannuation Industry (Supervision) Act as real property used wholly and exclusively in one or more businesses, whether carried on by the fund or not. Six things decide whether your premises clear that bar:
Use Measured Across the Arrangement
The Australian Taxation Office (ATO) states that the asset must be business real property at the time the limited recourse borrowing arrangement (LRBA) is entered into and for the entire life of that arrangement, and that a fund which does not meet this has breached the borrowing prohibition.
Buying a shell you intend to fit out and trade from later puts the test at its weakest point, because the qualifying use has not started yet.
Activities Recognised as Genuine Businesses
The definition turns on a business being carried on, and not every activity qualifies. A hobby or the passive holding of one or two rental properties will generally fall short.
The Commissioner looks at matters such as scale, permanency, profit intention and record keeping when deciding whether a business exists. Where your occupant is a trading operation with an Australian Business Number, staff and turnover, this rarely troubles anyone. Where it is a start-up yet to trade, it can.
Dwellings Attached to Business Premises
A shop with a flat above it, or a warehouse with a caretaker’s residence, is the classic failure. Private residential use is not business use, and the whole property carries one test.
Space Shared With Private Purposes
The Commissioner accepts other use where it is minor, insignificant or trifling, as set out in the business real property ruling. A storeroom holding a few personal items falls inside that. A floor used as a family residence does not.
The judgement is one of degree, made on the facts of your building instead of on a percentage, so it is worth putting to your accountant before contracts are drawn.
Vacancies Carried Between Tenancies
A property standing empty when the arrangement is entered into is the difficult case, because there is no business use to point to at that moment. An established tenancy history helps, though it does not replace current use.
Where your own business will occupy the premises, lenders and auditors will look at when the lease starts against when the arrangement begins.
Titles Counted as Single Assets
One arrangement finances one acquirable asset. Where your premises sit across two titles, they can generally only be financed under a single arrangement where they are physically or legally inseparable, such as a building straddling both lots or titles that cannot be dealt with apart.
Two separable titles mean two arrangements, two holding trusts and two loans, which changes the cost of the purchase considerably.
Leasing the Premises Back to Your Business
Paragraph 71(1)(g) of the Superannuation Industry (Supervision) Act keeps a lease of business real property to a related party outside the in-house asset rules, which is what allows your own business to be the tenant. The concession depends on the terms holding up:
Setting Rent at Market Value
Section 109 requires the fund’s dealings to be on arm’s length terms. Rent below market is the most common way this arrangement fails, and the consequence is that the income may fall under the non-arm’s length income provisions in section 295-550 of the Income Tax Assessment Act 1997 and be taxed at 45% instead of the concessional 15% that normally applies to fund income.
Evidence a fund would usually hold includes:
- Written appraisal from a licensed commercial agent.
- Comparable lettings in the same precinct and asset class.
- Formal valuation where the property is unusual or the market is thin.
- Marketing evidence showing what the premises were offered at.
- Records of the review method applied at each rent review.
Requirements differ between auditors and lenders, so treat this as a general guide and confirm what your fund needs with your accountant.
Documenting Lease Terms in Writing
A written lease on commercial terms is the baseline, covering the term, the permitted use, the review mechanism and the obligations of each party. A handshake between you and your own company does not evidence an arm’s length dealing.
The lease is also the document a lender assesses, and where the tenant is your business, expect it to be read closely alongside the rent appraisal.
Reviewing Rent at Set Intervals
A lease frozen at its opening rent drifts away from market as the years pass, and by year five the gap can be wide enough to attract attention. Building a review mechanism into the lease and then applying it is what keeps the arrangement defensible.
Paying Rent Under Lease Terms
Letting your business fall behind because cash flow is tight is not a dealing an unrelated landlord would accept, and the bank statements show it at audit.
Where the business genuinely cannot pay, a documented variation on commercial terms is a different thing from silence.
Allocating Outgoings Between Parties
Rates, insurance, land tax, strata levies and repairs all have to sit with whichever party an unrelated tenant would expect to carry them. A lease that pushes every outgoing onto the fund while charging full market rent is not the deal an arm’s length landlord would sign.
Charging Tax on Commercial Rent
Commercial rent is a taxable supply, so a fund receiving it may need to register for goods and services tax (GST) depending on its turnover. Registration can allow credits on the purchase and on outgoings, and the sale itself may be structured differently again.
The GST position changes the amount the fund actually needs at settlement, so it is worth resolving with your accountant before you work out the deposit.
Renewing Leases on Commercial Terms
Leases end. Where the tenant is your own business, the renewal is the point at which many arrangements quietly become a month-to-month understanding with no document behind it.
Exercising an option, or signing a fresh lease at a re-appraised rent, keeps the record intact. Holding over indefinitely on terms nobody has looked at since settlement is what an auditor finds.
Buying the Premises You Already Own
Section 66 stops a fund acquiring assets from a related party, and paragraph 66(2)(b) carves out business real property. That single exception is what lets you sell your own premises into your own fund:
Acquisitions Permitted From Related Parties
The property can be bought from you, from your company or from a trust you control, provided it is business real property at the time. Residential property has no equivalent pathway, which is the sharpest practical difference between the two categories.
Prices Set at Market Value
The transfer must occur at market value, supported by evidence you could show an auditor. A price set by reference to what the fund can afford, or to the original purchase price, is the version that causes problems later.
An independent valuation from a qualified valuer is the usual answer, and its date should sit close to the transaction.
Duty Assessed on Transfer Value
Transfer duty is assessed by Revenue NSW on the dutiable value of the property, and concessions apply only in limited circumstances. The amount is paid from fund assets and the borrowing does not cover it.
Duty is state-based, so a property outside New South Wales is assessed under that state’s rules. Your solicitor should confirm the position before you commit.
Capital Gains Triggered on Sale
Selling the premises to your fund is a disposal for you or your entity, and it can trigger a capital gains liability in the year of sale. Small business concessions may reduce or defer that, depending on your turnover, your net assets and how long the property has been held.
That calculation belongs to your accountant, and it can be large enough to change whether the transaction makes sense at all.
Contributions Made in Specie
Business real property can be contributed to the fund instead of sold, which reduces the cash the fund needs. The value contributed counts against your contribution caps in the year it is made, and exceeding a cap creates its own tax consequences.
A part sale and part contribution is possible, and the split is a matter for your adviser to model against your caps and your cash position.
Costs Met From Fund Assets
The deposit, the duty, the legal work on the lease and the trust deeds, and the valuation all come from the fund. They are payable whether or not the loan proceeds, and they reduce the liquidity a lender wants to see remaining after settlement.
A fund that can just afford the deposit usually cannot afford the transaction.
Loans Provided by Related Parties
You can lend to your own fund instead of using a bank, and the ATO’s Practical Compliance Guideline PCG 2016/5 sets out safe harbour terms under which the Commissioner accepts the arrangement as arm’s length. For real property, those terms include a maximum 70% loan-to-value ratio, a maximum 15-year term, monthly principal and interest repayments and a registered mortgage over the property.
The interest rate is benchmarked to the Reserve Bank of Australia’s indicator lending rate for banks providing standard variable housing loans for investors, published each May and applied from the following 1 July. The ATO has flagged that it is reviewing the Guideline following the changes that commenced on 10 August 2026, so confirm the current terms before relying on them.
Keeping the Arrangement Compliant Afterwards
The property test runs for the life of the loan, and the lease and the in-house asset concession depend on facts that keep changing. Seven of them decide whether the arrangement stays clean:
Businesses That Close or Relocate
Winding up the business, or moving it to larger premises, removes the tenant that made the property business real property. The fund can lease to an unrelated business instead, and the use must stay wholly and exclusively business use.
The borrowing continues either way, which is why the fund’s ability to carry repayments through a vacancy matters more here than in an ordinary commercial purchase.
Tenants That Vacate the Premises
An empty building still has to service its loan. Rent stops, the fund’s income drops, and contributions are capped, so there is a limit to how far members can fill the gap.
Improvements That Breach the Arrangement
Borrowed money can be used to repair and maintain the asset and cannot be used to improve it. Where changes are significant enough that the asset becomes a different asset, the arrangement itself can fail.
The distinction between a repair and an improvement is set out in the ATO’s ruling on LRBAs, SMSFR 2012/1, and it is not always obvious from the invoice.
Refinancing That Preserves the Arrangement
An arrangement entered into before 10 August 2026 can be refinanced without becoming subject to the new business real property test, which the ATO has confirmed. The ATO treats refinancing as a new loan contract over the same asset, with either the existing lender or a new one.
Refinancing does not restart the arrangement, so the original asset and the original structure carry through. A top-up, an equity release or a change to the security is a different matter, and can be treated as a new arrangement that loses the protection.
Repayments That Fall Into Arrears
Repayments come from fund assets, meaning rent plus contributions. Contributions are capped, so a shortfall cannot simply be topped up from the business or from a member’s personal savings.
Limited recourse restricts the lender’s claim over the fund’s other assets, though most SMSF lenders require personal guarantees from the members, which sit outside that protection.
Valuations That Fall Due Each Year
Regulation 8.02B of the Superannuation Industry (Supervision) Regulations requires every fund asset to be carried at market value each income year, and your auditor must obtain evidence supporting it. The ATO reported that regulation 8.02B breaches accounted for over 12% of all breaches reported by SMSF auditors in 2024-25, and that funds reporting unchanged asset values are under scrutiny.
A qualified independent valuer is not required every year, though the ATO recommends one where the property is a significant proportion of the fund’s value, which a single commercial building usually is.
Use That Drifts From Business Purposes
Storing personal belongings in the warehouse, letting a family member live in part of the building, or allowing the tenant’s use to become partly private can all erode the wholly and exclusively test. The in-house asset concession for the lease depends on the property continuing to qualify.
Rent Paid Into Your Own Fund
The thought behind this search is usually simple arithmetic. You have paid rent for a decade, the landlord owns a building, and you own nothing beyond a lease that expires.
What the rules decide is whether your situation fits the one category superannuation law still allows a fund to borrow for. The property has to be used wholly and exclusively in a business, the lease has to look like one an unrelated landlord would sign, and the fund has to be strong enough to carry the loan through a vacancy.
Where you are weighing up buying your premises through your fund, the team at DIY Lending can talk you through the lending side and work alongside your accountant on the rest.
Frequently Asked Questions (FAQs)
1. Can two SMSFs buy one property together?
Yes, commonly as tenants in common, with each fund holding a defined share. Each fund needs its own arrangement, its own holding trust and its own loan, since one arrangement finances one asset for one borrower.
Partners buying premises together often use this to match ownership to the business, though it doubles the structure and the cost. A written agreement covering what happens when one party wants out is worth having before settlement.
2. What happens to the premises when I retire?
The fund can keep the property and continue receiving rent, sell it, or transfer it to you as an in specie benefit payment once you meet a condition of release. Each route has a different tax result for the fund and for you.
The borrowing has to be dealt with first, since a benefit cannot be paid from an asset still held in the holding trust under an outstanding loan.
3. Can my business pay for its own fit-out of the premises?
Generally yes, and the terms should be set out in the lease. Fit-out paid for by the tenant is usually treated as the tenant’s property, and what happens to it at the end of the lease is a matter the lease should specify.
Where the fund pays for work that mainly benefits your business, the arm’s length rules come back into play, so the party bearing the cost should be the one an unrelated landlord and tenant would have agreed on.
4. Does the property have to be in New South Wales?
No. Superannuation law applies nationally, so a fund can buy business real property in any state. Transfer duty, land tax and lease legislation are state-based, and they differ enough to change the cost of the purchase.
We work with trustees across New South Wales, including funds buying interstate, and the lending assessment is the same wherever the building sits.
This article contains general information only. It is not financial product advice and does not take your objectives, financial situation or needs into account. Superannuation law, lender requirements and thresholds change, and the ATO is currently updating its guidance and reviewing Practical Compliance Guideline PCG 2016/5 following the changes that commenced on 10 August 2026. You may wish to speak with your accountant or a licensed financial adviser before acting on anything set out here.