Investing in commercial property through an SMSF

Can an SMSF invest in commercial property?

Yes. An SMSF can invest in eligible commercial property and may use a limited recourse borrowing arrangement (LRBA) to finance the purchase. The property must comply with SMSF investment rules and, where borrowing is involved, meet the business real property requirements.

Eligible properties may include offices, retail shops, industrial buildings, factories and commercial warehouses used wholly and exclusively in one or more businesses.

Before investing, trustees should consider whether commercial property is appropriate for their fund's investment strategy, financial position and retirement objectives. Independent financial and legal advice is recommended.

How have the SMSF property borrowing rules changed?

Following legislation associated with the 2026 federal Budget, new SMSF limited recourse borrowing arrangements for property acquisitions are generally restricted to business real property. The changes took effect on 10 August 2026.

The key implications are:

• Commercial property purchases: SMSFs can continue to borrow to purchase eligible business real property.
• Residential property purchases: New borrowing for residential investment property is generally restricted, subject to transitional provisions and limited exceptions.
• Existing SMSF loans: Qualifying existing residential and commercial SMSF loans may still be refinanced, subject to applicable requirements.
• Mixed-use properties: Properties containing residential or other non-business use may fail the business real property test.
• Existing contracts: Certain purchases contracted before the changes commenced may be protected by transitional provisions.

The reforms do not prevent SMSFs from owning eligible residential investment property purchased without borrowing. Instead, they change which properties can be acquired using new SMSF borrowing arrangements.

Trustees considering refinancing an existing residential SMSF loan should obtain independent legal advice to confirm that their arrangement qualifies under the transitional provisions.

What is business real property in an SMSF?

Business real property generally means a freehold or leasehold interest in property used wholly and exclusively in one or more businesses, whether or not those businesses are operated by the SMSF trustee.

The definition is found in section 66(5) of the Superannuation Industry (Supervision) Act 1993.

The key consideration is the property's actual use, not its zoning, physical appearance or whether it generates rental income.

For example, a warehouse used entirely for business storage may qualify, while a commercially zoned building with a residential apartment may not.

What is the business real property test?

A property must satisfy several requirements to qualify as business real property.

1. Genuine business use: The property must be used in one or more businesses. Generating rental income alone does not automatically establish business use.
2. Wholly and exclusively: The property must be used wholly and exclusively for business purposes. Residential or private use may prevent qualification.
3. Actual use rather than zoning: Commercial zoning does not guarantee eligibility, and residential zoning does not automatically exclude a property.
4. Property interest: The test applies to the relevant property interest being acquired, including any residential or non-business components.
5. SMSF compliance: The investment must also satisfy other superannuation requirements, including the sole purpose test and applicable borrowing rules.

The assessment can be complex, particularly for mixed-use properties or unusual business arrangements. Trustees should obtain independent legal advice to establish whether a property qualifies before entering into a purchase contract.

Which properties qualify as business real property?

The following table provides general examples of how the business real property requirements may apply to different property types.

Eligibility depends on the individual property, its actual use and the applicable legal requirements. The classifications above are indicative only, and independent legal and financial advice should be obtained before purchasing property through an SMSF.

Can mixed-use property qualify as business real property?

Mixed-use property may fail the business real property test where part of the property is used for residential or private purposes.

For example, a retail shop with an upstairs residential apartment may not qualify if both form part of the same property interest.

Even a relatively small residential component can affect eligibility. The property's title, ownership structure and actual use should be reviewed by an SMSF legal specialist.

Can an SMSF borrow to buy a serviced apartment or Airbnb property?

Serviced apartments, Airbnb properties and holiday rentals generally do not qualify as business real property simply because they generate income.

A residential property used wholly and exclusively in a genuine business may potentially qualify, but this is uncommon and requires careful assessment.

Short-term letting or professional property management alone does not automatically satisfy the business real property test.

Can your business lease commercial property from your SMSF?

Yes. An SMSF may lease qualifying business real property to a business operated by a fund member or related party, provided the arrangement complies with superannuation rules.

For example, a business owner may use their SMSF to purchase eligible commercial premises and lease them to their operating business.

The lease must generally be conducted on arm's-length terms, including charging market rent and maintaining appropriate commercial documentation.

Rental income is paid into the SMSF and may help fund loan repayments and property expenses.

Related-party arrangements are subject to strict requirements, so trustees should obtain independent legal and tax advice before proceeding.

What should you consider before investing in commercial property through an SMSF?

Commercial property investment through an SMSF requires careful consideration of rental income, property expenses, liquidity, investment risk and regulatory compliance.

Rental income and tenant quality

Review the tenant's financial position, lease duration, rent review arrangements and responsibilities for property expenses.

Rental income may help meet SMSF loan repayments, but vacancy periods or tenant defaults can affect the fund's cash flow.

Location and market demand

The property's location, surrounding businesses and demand for the particular type of commercial premises can influence rental returns and resale value.

Liquidity and concentration risk

Commercial property can represent a substantial proportion of an SMSF's assets and may take time to sell.

Trustees should ensure the fund retains sufficient liquidity for repayments, property expenses and other obligations.

Property and borrowing costs

Consider stamp duty, legal fees, holding trust establishment costs, loan fees, insurance, maintenance and ongoing SMSF administration expenses.

Interest rate changes and unexpected repairs may also affect investment returns.

Before making an investment decision, trustees should obtain independent financial, legal and tax advice to assess whether the property is appropriate for their SMSF's circumstances and investment strategy.

How do you assess a commercial property before purchasing it through an SMSF?

Before purchasing commercial property through an SMSF, trustees should:

1. Confirm business real property eligibility: Review the property's actual use and obtain specialist advice where required.
2. Review the investment strategy: Assess diversification, risk, liquidity and retirement objectives.
3. Evaluate rental income: Consider lease terms, vacancy risk and ongoing expenses.
4. Complete property due diligence: Review the title, building condition, tenant arrangements and relevant approvals.
5. Assess borrowing capacity: Confirm the SMSF has sufficient funds for the deposit, purchase costs and ongoing repayments.
6. Check lender requirements: Ensure the property and borrowing structure meet the lender's credit criteria.

Legal eligibility and lender approval are separate considerations. A property may satisfy the business real property definition but still fall outside a lender's acceptable security requirements.

What commercial SMSF property loans does Yard offer?

Yard offers SMSF property finance for eligible commercial property purchases and refinancing existing SMSF property loans.

Depending on the property and application, Yard's commercial SMSF loan features include:

Yard assesses the SMSF's financial position, property security, borrowing structure and ability to meet repayments. Loan amounts, LVRs and features are subject to credit approval, terms, conditions, fees and charges.

Yard does not provide personal financial or legal advice. Before applying, trustees should obtain independent professional advice about whether SMSF borrowing is appropriate for their circumstances.

Learn more about Yard's SMSF property loans.

How can Yard help you finance commercial property through your SMSF?

Yard provides specialist SMSF lending for eligible commercial property purchases and refinancing existing residential and commercial SMSF loans.

A dedicated Yard Loan Consultant can help you understand the lending requirements, review your borrowing options and guide you through the application and settlement process.

Explore Yard's SMSF property loans or use the SMSF loan repayment calculator to estimate potential repayments.

This article provides general information only and does not take into account your personal circumstances or investment objectives. Obtain independent financial, legal and tax advice before making SMSF investment or borrowing decisions.