How to lease commercial property back to your business

Your self-managed super fund can borrow to purchase commercial premises and lease them back to your related party business, provided the property meets the business real property definition and the arrangement is structured correctly.

The strategy allows you to build wealth within your superannuation while your operating business pays deductible rent to your fund. The rent becomes concessionally taxed income inside the SMSF, and the property remains available for your business to use. For Clarinda businesses operating in the suburb's industrial precinct along Centre Dandenong Road or in mixed-use zones near Clayton Road, this structure offers a way to secure commercial premises without tying up capital outside super.

What Makes Property Eligible for SMSF Borrowing

Business real property means land and buildings used wholly and exclusively in one or more businesses. The property must be used for business purposes at the time your fund acquires it. A warehouse leased to your manufacturing business qualifies. A vacant block held for future use does not. Where a property includes a dwelling, it can still meet the definition if the dwelling occupies no more than 2 hectares and the main use of the whole property is not domestic or private.

Consider a Clarinda-based logistics operator whose SMSF borrows to purchase a 600-square-metre warehouse on the industrial side of Centre Dandenong Road. The fund holds the property in a bare trust under a Limited Recourse Borrowing Arrangement, and the operator's company leases the premises at market rent. The property qualifies because it is used wholly and exclusively in the business. The rent paid by the company is deductible to the business and assessable to the fund at the concessional rate of 15 percent during accumulation phase.

How the Limited Recourse Structure Works

The borrowed funds must be used to acquire a single asset held in a separate holding trust. Your SMSF acquires a beneficial interest in the property and gains legal ownership once the loan is repaid. If the loan defaults, the lender's recourse is limited to the asset in the trust. No other fund assets are at risk.

The loan cannot be used to improve the property after acquisition. If you need to fit out the premises or undertake capital works, those costs must be funded from existing SMSF cash or member contributions. You cannot draw down additional borrowed funds for improvements under arrangements entered into after July 2010.

Setting the Lease on Arm's Length Terms

Any lease between your SMSF and a related party business must be made on arm's length terms at market value. Rent must reflect what an independent tenant would pay for comparable premises in the area. A lease at below-market rent breaches the sole purpose test and may result in fund income being taxed at the top marginal rate as non-arm's length income.

You will need a registered valuer to confirm market rent at the start of the lease and at each renewal or review period. Lease terms should be documented in writing and include provisions consistent with commercial tenancies in your area. For industrial and warehouse premises near Moorabbin Airport or along the Westall Road corridor, comparable rental evidence is typically drawn from recent leases in Braeside, Dingley Village, and Clayton South.

Deposit and Borrowing Capacity

Lenders offering SMSF commercial property loans typically require a deposit of 30 to 40 percent of the purchase price. The maximum loan-to-value ratio is generally 60 to 70 percent. Your fund must have sufficient cash or liquid assets to cover the deposit, plus stamp duty, legal fees, and loan establishment costs.

Borrowing capacity depends on the rental income the property will generate. Lenders assess whether the rent is sufficient to service the loan, with some allowing for personal guarantees from members. Those guarantees must be limited in recourse to the property held in the trust, not to other fund assets. If your SMSF holds multiple properties or listed securities, they remain protected even if the LRBA defaults.

Changes to Residential Property Under the 2026 Law

From approximately 10 August 2026, new limited recourse borrowing arrangements cannot be used to acquire residential property. The ban applies regardless of whether the property is newly constructed or an existing dwelling. Self-managed super funds can still purchase residential property using existing fund assets without borrowing, but those properties cannot be acquired from a related party and cannot be occupied by a member or related party.

Commercial property that satisfies the business real property definition is not affected by the change. SMSF loans for premises such as warehouses, offices, retail shops, and industrial units remain available under the same conditions that applied before the legislation commenced.

Contribution Limits and Division 296 Tax

To fund the deposit and associated costs, you may need to make additional contributions to your SMSF. The concessional contributions cap is $32,500 per member per year. The non-concessional cap is $130,000 per year, with a bring-forward arrangement allowing up to $390,000 over three years if your total superannuation balance was below $1.84 million at the end of the previous financial year.

From 1 July 2026, members with a total superannuation balance above $3 million are subject to Division 296 tax of 15 percent on the proportion of earnings above that threshold. Where the balance exceeds $10 million, an additional 10 percent applies to earnings above that level. Outstanding loan amounts under certain LRBAs are included in your total superannuation balance, which may affect whether you exceed the threshold.

Refinancing an Existing LRBA

You can refinance an existing SMSF loan to a different lender or adjust the loan terms, provided the refinanced arrangement relates to the same asset and maintains the limited recourse character of the original loan. The new loan must meet arm's length terms consistent with the ATO's guidance.

A significant change to the terms or beneficiaries of the arrangement may end the existing LRBA and create a new one. As at early July 2026, the ATO had not published updated guidance on how refinancing will be treated under the post-commencement residential ban. Existing commercial property loans are not affected by that uncertainty, but any refinancing should be reviewed by a licensed SMSF specialist before proceeding.

Why Clarinda Businesses Use This Structure

Clarinda sits within the City of Kingston, bordered by Clayton to the north and Oakleigh South to the east. The suburb contains a mix of residential streets and light industrial zones, with commercial activity concentrated near the intersection of Centre Dandenong Road and Bourke Road. Businesses in automotive services, warehousing, and light manufacturing operate from sites close to major transport routes including the Dingley Bypass and Westall Road extension.

For operators whose businesses generate consistent revenue, leasing commercial premises back to the operating entity allows the business to pay tax-deductible rent while the SMSF accumulates concessionally taxed income. The property remains available for business use, and the fund builds an asset that can be held through retirement. Members in pension phase pay no tax on rental income, and capital gains on property held for more than 12 months in accumulation phase are concessionally taxed at 10 percent.

Call one of our team or book an appointment at a time that works for you. We work with SMSF specialists and can connect you with advisers who structure these arrangements in line with the current law.

Frequently Asked Questions