Purchasing an office building through your Self-Managed Super Fund can offer tax advantages and long-term wealth building, particularly if you operate a business that needs commercial premises.
The rules governing SMSF property loans changed substantially in mid-2026, but commercial property purchases remain fully supported under the Limited Recourse Borrowing Arrangement framework. If you run a medical practice, consulting business, or professional service and you're weighing whether to lease premises or acquire them through super, understanding how SMSF commercial loans operate becomes relevant.
How SMSF Commercial Property Loans Differ from Residential LRBAs
An SMSF commercial loan allows your fund to borrow money to acquire business real property, which is defined under section 66 of the Superannuation Industry (Supervision) Act as land and buildings used wholly and exclusively in one or more businesses. The property is held in a bare trust structure until the loan is repaid, after which legal ownership transfers to your SMSF. If the loan defaults, the lender's recourse is limited to the property itself, protecting other fund assets.
New residential property borrowing through LRBAs was restricted from approximately 10 August 2026 under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026. Commercial property borrowing was unaffected by this change. Your fund can still acquire an office building, warehouse, retail premises, or other business real property using an LRBA, provided the property meets the definition and the borrowing complies with arm's length terms.
Consider a Black Rock physiotherapy practice owner who wants to purchase a standalone clinic on Beach Road. If the property is used wholly and exclusively for the physiotherapy business, it qualifies as business real property. The SMSF can borrow to acquire the property, the clinic pays rent to the SMSF at market rates, and rental income and any eventual capital gain are taxed at concessional superannuation rates. The arrangement must be documented through a bare trust, and the loan must meet the limited recourse requirement.
What Business Real Property Means in Practice
Business real property must be used wholly and exclusively in one or more businesses at the time your SMSF acquires it. The business does not need to be carried on by your SMSF or by you personally. The property can be leased to an unrelated third party or to a related party, including a company you control, provided the lease is on arm's length terms.
A property marketed as commercial does not automatically satisfy the definition. Actual use determines compliance. A shopfront leased to a cafe operating a business satisfies the test. An office building leased to multiple tenants conducting their businesses also qualifies. A property with a residential component may fail the wholly and exclusively requirement unless it falls within specific exceptions, such as the concession for certain primary production property.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Aviser Finance today.
In our experience, properties in Black Rock's commercial precinct near the foreshore or along Bluff Road tend to attract strong tenant demand from allied health providers, professional services, and local retail businesses. These properties can serve as both an income-producing asset for your SMSF and, if leased to your own business, a way to redirect rent payments from a third-party landlord into your retirement savings.
Deposit and Loan-to-Value Ratio Requirements
Lenders offering SMSF loans typically require a larger deposit than for standard investment loans. Most lenders cap the loan-to-value ratio at 70 percent for commercial property, meaning your SMSF must contribute at least 30 percent of the purchase price plus associated costs. Some lenders may reduce the LVR to 60 percent depending on the property type, location, and tenant profile.
Your SMSF must have sufficient cash or liquid assets to fund the deposit and settlement costs. Borrowed funds cannot be used to cover stamp duty, legal fees, or loan establishment costs beyond the asset acquisition itself under an LRBA. You cannot use personal funds to top up the deposit, as this would constitute a contribution subject to contribution caps. The deposit must come from existing fund assets, which may include accumulated member contributions, concessional or non-concessional contributions made within allowable caps, or proceeds from the sale of other fund investments.
From 1 July 2026, the concessional contributions cap is $32,500 per member per year, and the non-concessional cap is $130,000 per member per year. Members with a total superannuation balance below $1.84 million on the preceding 30 June may access the bring-forward arrangement, allowing up to $390,000 in non-concessional contributions over three years.
SMSF Loan Interest Rates and Arm's Length Terms
SMSF loan interest rates are typically higher than standard home loan rates, reflecting the different risk profile and regulatory structure. Most lenders offer variable rates, though some provide fixed rate options for a portion of the loan term. Your SMSF mortgage broker can compare SMSF lenders to identify suitable products based on your fund's circumstances and the property you intend to acquire.
The loan must be made on arm's length terms. Practical Compliance Guideline PCG 2016/5 sets out safe harbour interest rates updated annually by the ATO. If your SMSF borrows from a related party at a rate below the safe harbour benchmark, the income derived from the arrangement may be treated as non-arm's length income and taxed at 45 percent rather than the concessional rate.
A related party lender may provide a personal guarantee to the external lender, but recourse must remain limited to the asset held in the bare trust. The lender cannot pursue other SMSF assets or the personal assets of fund members beyond the property securing the loan.
Leasing the Property to Your Own Business
Business real property leased to a related party is excluded from the in-house asset rules, which ordinarily cap an SMSF's investment in related party assets at 5 percent of fund assets. This exclusion allows your SMSF to purchase an office building and lease it to a company or trust you control, provided the lease is on arm's length terms.
Arm's length terms require that the rent charged reflects current market rates for comparable properties in the area. You should obtain an independent valuation or market rental assessment and document the lease with a formal agreement. Charging below-market rent may trigger non-arm's length income treatment, while charging above-market rent may constitute a breach of the sole purpose test if it provides an inappropriate benefit to the member.
Consider a scenario where a Black Rock accountant operates through a family trust and has accumulated $400,000 in their SMSF. The accountant identifies a two-storey office building near the Black Rock village centre. The property is leased to an established accounting practice on a five-year lease. The purchase price reflects current commercial property values in the Bayside area, the SMSF provides a 30 percent deposit, and the lender approves a 70 percent LVR loan. The SMSF acquires the property through a bare trust, and the existing tenant continues to occupy the premises. When the lease expires, the accountant's family trust takes over the tenancy at a market rental rate supported by an independent assessment. The SMSF receives rental income taxed at 15 percent during accumulation phase, and the accountant's business benefits from occupying a commercial property owned within their retirement savings structure.
Tax Treatment of Rental Income and Capital Gains
Rental income received by your SMSF is taxed at 15 percent during accumulation phase. Deductible expenses include loan interest, property management fees, council rates, insurance, repairs, and depreciation on eligible plant and equipment. Capital works deductions may also apply to the building structure over the applicable period.
When your SMSF disposes of the property, any capital gain is included in the fund's assessable income. If the property has been held for at least 12 months, a one-third CGT discount may apply, producing a maximum effective rate of 10 percent on the discounted gain. The actual tax liability depends on the property's cost base, selling costs, allowable deductions, and whether the fund has capital losses to offset.
If your SMSF has commenced a pension and the property supports that pension, the fund may be eligible for exempt current pension income. Where assets are fully segregated as current pension assets, capital gains on disposal are disregarded. Where the fund holds both accumulation and pension interests, an actuarial certificate determines the exempt proportion. The rules governing exempt current pension income are detailed, and outcomes vary based on transfer balance cap considerations, minimum pension payment requirements, and the fund's overall structure.
Division 296 Tax and High-Balance Members
From 1 July 2026, Division 296 tax applies where a member's total superannuation balance at the end of the financial year exceeds $3 million. An additional 15 percent tax applies to the proportion of earnings attributable to the amount above that threshold. Where the total superannuation balance exceeds $10 million, an additional 10 percent tax applies to earnings above that higher threshold.
Division 296 fund earnings for an SMSF are an adjusted amount of the fund's taxable income. Rental income and realised capital gains may contribute to the Division 296 calculation. An unrealised increase in property value does not produce assessable income or Division 296 earnings until a CGT event occurs. Amounts borrowed under an LRBA are disregarded when calculating a member's total superannuation balance.
SMSF trustees had the option to elect a CGT adjustment to the cost base of fund assets to market value as at 30 June 2026, recognising accrued gains before Division 296 commenced. This election applied to all directly held CGT assets and was made solely for Division 296 purposes, not for general income tax.
Refinancing an Existing SMSF Commercial Loan
Refinancing a commercial SMSF loan is not affected by the 2026 restrictions on new residential LRBAs. You can refinance to access a lower interest rate, move to a different lender, or restructure the loan term, provided the refinanced arrangement continues to meet the conditions for a complying LRBA.
The refinanced loan must relate to the same asset, maintain the limited recourse character, and comply with arm's length terms. A significant change to the terms or conditions may cause the original arrangement to end and a new arrangement to begin. Practical Compliance Guideline PCG 2016/5 remains the reference point for determining whether loan terms meet arm's length requirements.
Where you are considering refinancing to improve cash flow or reduce repayment obligations, working with an SMSF mortgage broker who understands both the lending market and the compliance framework helps ensure the refinanced structure remains compliant. As at late July 2026, the ATO had not yet published updated guidance on all aspects of the new law, and trustees should seek advice from a licensed SMSF specialist before proceeding with any refinancing or new borrowing.
Application Process and Documentation Requirements
Applying for an SMSF commercial loan involves more documentation than a standard residential mortgage. Lenders require a copy of your SMSF trust deed, recent financial statements, member statements, evidence of the deposit source, and details of the property and its intended use. You will also need to establish a bare trust arrangement before settlement, which requires legal documentation naming the holding trustee and setting out the terms under which the property is held for the benefit of your SMSF.
The property must be a single acquirable asset. Multiple real property titles cannot be acquired under a single LRBA unless they are distinctly identifiable as a single asset. This means they must have equal market value, be bought and sold together, and be genuinely indivisible.
Borrowed funds cannot be used to improve an existing asset. If your SMSF already owns a commercial property, you cannot place it into an LRBA or draw down additional funds under an existing LRBA to fund capital improvements. Renovations or extensions must be funded from other SMSF assets or future contributions.
Lenders will assess the serviceability of the loan based on rental income, the strength of the tenant, lease term, and the financial position of your SMSF. A property leased to a financially stable tenant on a long-term lease is viewed more favourably than a vacant property or one with a short remaining lease term. Working with a broker who regularly arranges commercial property loans ensures your application is structured to meet lender criteria and complies with superannuation law.
Call one of our team or book an appointment at a time that works for you. We work closely with Black Rock professionals, business owners, and SMSF trustees to structure complying loan arrangements that align with your retirement and business goals.
Frequently Asked Questions
Can I still borrow through my SMSF to buy commercial property after the 2026 law changes?
Yes. The 2026 restriction applies only to new residential property borrowing. Commercial property that satisfies the business real property definition under section 66 of the Superannuation Industry (Supervision) Act can still be acquired using a Limited Recourse Borrowing Arrangement.
What deposit does my SMSF need to purchase an office building?
Most lenders require at least a 30 percent deposit for commercial property, capping the loan-to-value ratio at 70 percent. Some lenders may reduce the LVR to 60 percent depending on the property type, location, and tenant strength. The deposit must come from existing SMSF assets or allowable contributions.
Can my SMSF lease the office building to my own business?
Yes, provided the lease is on arm's length terms at market rent. Business real property leased to a related party is excluded from the in-house asset rules. You must obtain an independent rental assessment and document the lease formally to avoid non-arm's length income treatment.
How is rental income from an SMSF-owned office building taxed?
Rental income is taxed at 15 percent during accumulation phase. If the SMSF is in pension phase and the property supports a retirement income stream, the fund may be eligible for exempt current pension income, subject to segregation rules and actuarial certification where the fund has both accumulation and pension interests.
What happens if my total superannuation balance exceeds $3 million?
From 1 July 2026, Division 296 tax of 15 percent applies to the proportion of earnings attributable to balances above $3 million. An additional 10 percent applies above $10 million. Rental income and realised capital gains may contribute to Division 296 earnings, but unrealised property value increases do not trigger this tax until a CGT event occurs.
