An SMSF can borrow to buy commercial property, but only through a specific structure called a limited recourse borrowing arrangement, or LRBA. The property is held in a separate holding trust while the loan is in place, and the lender’s recourse is limited to that property rather than the fund’s other assets. Once the loan is repaid, the fund can generally take legal title.
The most common reason trustees look at this is to have the fund buy the premises their own business operates from, then lease it to the business at market rent. That can work, but the super rules, lease terms, lender policy and fund liquidity all need to line up. Lender requirements are typically more conservative than standard commercial lending, so preparation and specialist advice come first.
Important: NewGen helps with the lending side only and doesn’t give financial product advice on whether an SMSF, or buying property through one, is right for you. Speak to an SMSF specialist, accountant or licensed financial adviser about that.
How does an LRBA work for commercial property?
The ATO explains that an SMSF can use an LRBA to buy a single acquirable asset, or a collection of identical assets with the same market value, with the asset held in a separate trust (ATO). In practice:
- the SMSF trustee borrows from a lender to buy the property
- a holding trust holds legal title on behalf of the fund
- the SMSF holds the beneficial interest and receives the rent
- if the loan defaults, the lender’s recourse is limited to the property
- once the loan is repaid, legal title can be transferred to the fund
The ATO also sets out rules for entering an LRBA, including how borrowed money may be used (ATO). Borrowed money can be used for repairs and maintenance, but not to improve the asset. Our article on whether an SMSF can borrow to buy property covers these basics for residential and commercial property.
Why is business real property the common use case?
SMSFs face strict limits on dealing with members and related parties. Commercial premises used wholly and exclusively in a business, known as business real property, are treated differently from residential property under the super rules. In general terms, that difference is what allows an SMSF to own the premises of a related business and lease it to that business.
What conditions apply to the lease and purchase?
The conditions are important:
- the lease must be on arm’s length terms, including market rent, a proper written lease and rent actually paid
- the investment must meet the sole purpose test, meaning it is maintained to provide retirement benefits for members
- the purchase must fit the fund’s trust deed and investment strategy
Moneysmart’s guide to SMSFs and property explains the broader rules and risks of holding property in super (Moneysmart). These rules are technical, so get advice from an SMSF specialist, accountant or licensed financial adviser before you commit.
What is the bare trust or holding trust?
The holding trust, often called a bare trust, is a separate trust set up for the LRBA. Its trustee, commonly a company set up for this role, holds legal title to the property for the SMSF. The structure needs to be in place, with correctly drafted documents, before the property is bought.
Getting the order wrong, such as signing the contract in the wrong name, can create problems that are costly to fix. A solicitor experienced in SMSF lending usually prepares the holding trust deed alongside the loan documents.
What do lenders look for in an SMSF commercial loan?
Fewer lenders offer SMSF loans than standard commercial loans, and their criteria are typically more conservative. Lenders commonly review:
- The SMSF trust deed, investment strategy and holding trust documents
- Fund balance, assets and liquidity after settlement
- Member contributions and how they support repayments
- The lease, rent and tenant, including whether the tenant is a related business
- A commercial valuation of the property
- The trustee structure, with some lenders preferring a corporate trustee
- Personal guarantees from members or directors, where the lender requires them
Our SMSF loan rates guide explains how lenders price these loans and what to compare.
What are the risks and costs?
Buying through an SMSF has risks and costs that don’t arise in the same way with a standard commercial purchase. Weigh both with your advisers before you commit.
What are the main risks?
SMSF commercial property can concentrate a large part of your retirement savings in one asset. Key risks include:
- Tenant risk: if your own business is the tenant and it struggles, the fund may lose its rental income at the same time
- Liquidity: property is hard to sell quickly, and the fund still needs cash for repayments, expenses and any benefit payments
- Limits on improvements: borrowed money can’t be used to improve the property
- Refinance risk: fewer lenders means fewer options if you need to refinance later
What costs should you budget for?
Costs to budget for include NSW transfer duty on the purchase (Revenue NSW), legal fees for the purchase and holding trust, valuation, lender fees, and ongoing accounting and audit costs for the fund. GST may also be relevant on commercial property, so ask your accountant.
How does an SMSF purchase compare with buying through a company or trust?
| Factor | SMSF via LRBA | Company or family trust |
|---|---|---|
| Who holds the property | Holding trust for the SMSF until the loan is repaid | The company or trust directly |
| Borrowing rules | LRBA rules; recourse limited to the property | Standard commercial lending |
| Lender choice | Narrower, with typically more conservative criteria | Wider range of commercial lenders |
| Leasing to your own business | Allowed for business real property on arm’s length terms | Generally possible; tax and legal advice still needed |
| Improving or developing | Borrowed money can’t be used to improve | More flexibility, subject to lender approval |
| Access to the money | Locked in super until a condition of release | Not tied to super rules |
| Tax treatment | Super fund tax rules apply | Company or trust tax rules apply |
Which structure suits you is a tax, legal and financial advice question, not a lending one. A broker can then compare loan options for the structure you choose. See what a commercial finance broker does for the non-SMSF pathway.
What are the steps to buy commercial property through an SMSF?
- Get advice first. Confirm with an SMSF specialist, accountant or licensed financial adviser that the strategy suits the fund.
- Check the deed and investment strategy. Update them if needed.
- Check lender appetite. Confirm deposit, liquidity and lease requirements before you find a property.
- Set up the holding trust. Have a solicitor prepare the bare trust and trustee company before signing.
- Sign the contract correctly. Make sure the purchaser details match the LRBA structure.
- Prepare the lease. Put a written lease in place on market terms.
- Apply, value and settle. Lodge the application, complete the valuation and settle.
To compare lender options once your advisers have confirmed the structure, visit our SMSF loans page. Finance is subject to lender approval.