Everything You Need to Know About SMSF Commercial Leasing

An SMSF commercial loan lets your fund borrow to buy business premises and lease them back to your operating company.

The arrangement works under a Limited Recourse Borrowing Arrangement where the property must qualify as business real property under the Superannuation Industry (Supervision) Act 1993. That means the land and buildings must be used wholly and exclusively in one or more businesses. The business using the property does not need to be the one holding the interest, which allows a related party lease between your fund and your company.

What Changed for SMSF Property Loans in 2026

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026 and restricted new limited recourse borrowing arrangements involving residential property from approximately 10 August 2026. The change does not affect LRBAs for commercial property that satisfies the definition of business real property under section 66 of the SIS Act.

Your SMSF can still borrow to acquire commercial premises in Coomera's industrial precincts or the commercial zones along the Pacific Motorway corridor. The restriction applies only to new residential borrowing arrangements, not to commercial property acquisition or existing residential loans entered into before the commencement date.

Consider a Coomera logistics business operating from a 400-square-metre warehouse in the Coomera Marine Precinct. The director's SMSF could use an SMSF commercial loan to purchase that warehouse and lease it back to the operating company at market rent. The rent paid by the company becomes assessable income for the fund, taxed at 15 percent during accumulation phase, and the property remains an asset of the fund.

How Business Real Property Rules Apply to Related Party Leasing

Business real property leased between the fund and a related party of the fund is excluded from the in-house asset rules. Without that exclusion, related party assets would be capped at 5 percent of the fund's total assets.

The property must be used wholly and exclusively in one or more businesses at the time of acquisition. Whether a property qualifies depends on its actual use, not how it is marketed or zoned. A Coomera mechanic buying a workshop with an attached residential flat would not meet the wholly and exclusively test unless the residential component is incidental under limited exemptions that apply mainly to primary production property.

Any lease to a related party must be made on arm's length terms at market value. That means the rent charged must reflect what an unrelated tenant would pay for comparable premises in the same location. For a warehouse in the Coomera industrial area, you would need a valuation or rental appraisal to establish the arm's length rate before the lease commences.

SMSF Loan Structures and What You Can Borrow For

Borrowed funds cannot be used to improve an existing asset. The loan can cover the purchase price, stamp duty, and loan establishment costs, but not capital improvements after settlement.

If your SMSF already owns a commercial property outright, you cannot place that property into a new LRBA to release equity for renovations. The restriction exists because the borrowed money must be used to acquire a single asset, and an existing fund asset does not satisfy that requirement. For LRBAs entered into on or after 7 July 2010, drawdowns for capital improvements are not permitted.

In a scenario where a Coomera trade business wants to expand its existing premises by adding a mezzanine or extending the warehouse, those works must be funded from the SMSF's cash reserves or member contributions, not through the LRBA. The limitation affects how you structure the purchase. If the premises need immediate work to be functional, consider whether the vendor can complete those improvements before settlement so the purchase price reflects the finished state.

Division 296 Tax and How It Affects SMSF Property Holdings

From 1 July 2026, members with a total superannuation balance exceeding $3 million at the end of the financial year pay an additional 15 percent Division 296 tax on earnings attributable to the amount above that threshold. Members exceeding $10 million pay an extra 10 percent on earnings above the higher threshold.

Rental income and realised capital gains from commercial property contribute to the Division 296 earnings base. An unrealised increase in property value does not produce assessable income or Division 296 fund earnings until a capital gains tax event occurs. LRBA amounts are disregarded when calculating a member's total superannuation balance for Division 296 tax purposes.

If your fund made a CGT adjustment election by 30 June 2026, the cost base of the property was reset to market value at that date for the purpose of working out Division 296 fund earnings. That election applies to all CGT assets held directly by the SMSF at 30 June 2026 and recognises accrued value prior to the commencement of Division 296. Division 296 tax assessments for the 2026-27 income year are expected to begin issuing in the second half of the 2027-28 income year.

Capital Gains Tax Treatment During Accumulation and Pension Phase

A complying SMSF is taxed at 15 percent on its assessable income, including net capital gains. Where an eligible asset 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 varies depending on the property's adjusted cost base, acquisition and selling costs, capital improvements, capital works deductions, capital losses, and the fund's overall tax position for that year. Capital losses cannot be claimed against income and can only be offset against capital gains.

Where a fund's assets are fully segregated as current pension assets, a capital gain on disposal of those assets is disregarded. Where the fund uses the proportionate method, the exemption applies to only the exempt proportion of the net capital gain, as determined by an actuarial certificate. The outcome depends on the method used to calculate exempt current pension income, the transfer balance cap, whether an actuarial certificate is required, whether minimum pension payment requirements have been satisfied, and the fund's specific circumstances.

Refinancing an Existing SMSF Commercial Loan

Refinancing of commercial LRBA arrangements is not affected by the 2026 restriction on new residential borrowing. The refinanced loan must relate to the same single acquirable asset, maintain the limited recourse character of the original arrangement, and meet arm's length terms consistent with the ATO's Practical Compliance Guideline PCG 2016/5.

The ATO publishes safe harbour interest rates for SMSF LRBAs under PCG 2016/5, updated annually, applying to both real property and listed securities. Income from an arrangement that does not meet arm's length terms may be assessed as non-arm's length income and taxed at the highest marginal rate of 45 percent.

In the event of a default, recourse of the lender against the SMSF trustees must be limited to the asset being acquired under the arrangement. A related party may provide a personal guarantee to the lender, but their recourse must also be limited to the asset under the arrangement and not any other SMSF assets. Genuine offset accounts offered by an authorised deposit-taking institution are not treated as a borrowing or a charge over fund assets under existing ATO guidance.

What Coomera Business Owners Should Know Before Proceeding

Coomera's commercial property market includes older industrial stock along the rail corridor and newer developments near Westfield Coomera and the motorway interchanges. Rental yields and vacancy rates vary depending on the precinct, building age, and access to transport links.

Your SMSF cannot acquire the property from a related party. The vendor must be an unrelated third party. If you currently lease premises from an unrelated landlord and want your fund to own the building, the SMSF must purchase it from that landlord or another unrelated seller. You cannot sell your personally owned commercial property into your own fund.

Multiple real property titles cannot be acquired under a single LRBA unless the properties are distinctly identifiable as a single asset, meaning they are identifiable, have equal market value, and are bought and sold together. Properties on separate titles do not qualify even if substantially similar. If the commercial premises you are acquiring span two titles, the structure may not comply unless they meet that narrow exception.

You will need a corporate trustee, a holding trust to satisfy the LRBA structure, a property valuation or rental appraisal to establish arm's length terms for the lease, and a lender that offers SMSF loans secured against commercial property. Not all lenders provide SMSF commercial loan products, and those that do typically require a deposit of at least 30 to 35 percent of the purchase price. LVR limits for SMSF commercial loans are generally lower than for standard commercial loans.

Call one of our team or book an appointment at a time that works for you. We work with lenders who provide SMSF commercial loan products and can structure the arrangement to meet the compliance conditions under the SIS Act and ATO guidance.

Frequently Asked Questions