Unlock the secrets to buying retail property with SMSF loans

A Self-Managed Super Fund commercial loan lets your SMSF purchase retail premises through a limited recourse borrowing arrangement, provided the property is business real property and the loan structure meets strict compliance requirements.

The SIS Act generally prohibits super funds from borrowing, but an LRBA is the legislated exception. Under an LRBA, your SMSF trustee borrows to acquire an asset held in a separate bare trust, gains beneficial ownership during the loan term, and receives legal title once repaid. The lender's recourse is limited to the asset itself, not other SMSF holdings. For any LRBA entered into from 10 August 2026, the property must be business real property when the loan is entered into and remain business real property for the entire life of the borrowing. If it stops qualifying, the SMSF breaches the borrowing prohibition and compliance action may follow.

Business Real Property: The Non-Negotiable Requirement

Business real property means land and buildings used wholly and exclusively in one or more businesses. The retail premises you purchase must meet this definition at settlement and continuously throughout the LRBA. A commercial zoning or a lease to a business tenant does not by itself satisfy the test. Consider a Sydney-based trustee purchasing a street-level retail shop in Newtown leased to a cafe operator under a five-year lease. The property qualifies as business real property because it is used wholly in the tenant's hospitality business. If the tenant vacates and the trustee begins marketing for a new tenant, the property does not stop being business real property during that vacancy period, provided the trustee has not abandoned plans to lease it commercially. If the trustee instead decides to hold the property vacant or use it for private purposes, the LRBA fails and the SMSF is in breach.

Lease Back to Your Own Business: The In-House Asset Rule

You can lease SMSF-owned retail premises back to your own company or a related party, but the property must remain business real property to avoid triggering in-house asset limits. When property held in the LRBA holding trust is leased to a related party of the SMSF, the SMSF's interest in that trust is classified as an in-house asset unless the leased asset would not be an in-house asset if the SMSF owned it directly. Business real property is excluded from the in-house asset definition, so a related party lease of qualifying business real property does not count toward the 5 per cent in-house asset limit. The lease must be on arm's length terms, meaning market rent, documented terms, and enforceable conditions. In our experience, lenders scrutinise related party leases closely and typically require a valuation and formal lease agreement before approving the LRBA.

LVR, Rates and Lender Appetite for Retail Property

LVRs for SMSF commercial loans typically sit between 60 per cent and 70 per cent, with most lenders offering 65 per cent or lower for retail premises. A handful of lenders will go to 70 per cent for well-located retail property with a strong lease covenant, but that requires a tenant with solid financials and a lease term of at least three years remaining. Rates vary by lender, loan size, LVR and property quality. Variable rate products are more common than fixed, and most lenders structure commercial LRBAs as interest-only loans with terms of five to ten years and a balloon payment at maturity. You can compare SMSF commercial lenders by rate, LVR policy, loan size and willingness to lend on specific property types, but not all lenders publish rate cards and many assess pricing case by case.

Single Asset and No Improvements: The Structural Limits

Each LRBA can finance only a single asset, or a collection of identical assets with the same market value that can be treated as a single asset. For real property, multiple titles cannot be acquired under one LRBA unless the titles are clearly identifiable as a single asset, are substantially the same, and are bought and sold together. A single retail shopfront on one title qualifies. Two adjoining shops on separate titles do not, even if sold as a pair. Borrowed funds can pay the purchase price, loan establishment costs, stamp duty, and ongoing maintenance or repairs, but they cannot be used to improve the asset. If you want to fit out or renovate the retail premises, the SMSF must pay for those works from its own cash reserves or rental income, not by drawing down additional loan funds. Drawdowns for capital improvements are prohibited under the LRBA rules.

Tax on Rental Income and Capital Gains in Accumulation Phase

Rental income from retail property held in an SMSF is taxed at 15 per cent unless the property supports a retirement phase income stream. A complying SMSF is taxed at 15 per cent on assessable income, which includes rent and net capital gains. If the SMSF holds the property for at least 12 months before selling, it receives a CGT discount of one-third, reducing the effective tax rate on the discounted gain to 10 per cent. The actual liability depends on the property's cost base, any capital losses available to offset, and the fund's overall tax position for the year. Capital losses, such as a loss on the sale of commercial premises, cannot be deducted against rental income and can only be offset against capital gains, with unused losses carried forward.

Tax on Rental Income and Capital Gains in Pension Phase

An SMSF can claim exempt current pension income on investment returns from assets that support a retirement phase income stream, subject to the transfer balance cap. ECPI can be calculated using the segregated method or the proportionate method. Under the segregated method, income and capital gains from assets supporting pensions are exempt and capital losses on those assets are disregarded. From the 2022 financial year, if all the fund's assets support retirement phase benefits at all times during the year, the segregated method must be used and no actuarial certificate is required. Under the proportionate method, an actuary determines the exempt proportion, which is applied to the fund's total assessable income including any net capital gain, and an actuarial certificate is required each year. ECPI claims require the fund to meet minimum pension standards, including payment of the minimum annual pension amount, and all fund assets must be valued at current market value.

Refinancing an Existing SMSF Commercial Loan

An LRBA entered into before 10 August 2026 can be refinanced on or after that date without the property needing to be business real property. An LRBA entered into on or after 10 August 2026 must be maintained or refinanced while the property still meets the business real property definition. If the property stops being business real property during the life of a post-10 August 2026 LRBA, the SMSF breaches the borrowing prohibition and compliance action may apply. Refinancing is treated as entering into a new loan contract for the same asset, with the same or a new lender. The refinance must meet the law that applied when the refinancing took place. Where a new trust is created to hold the asset, the asset must transfer directly to the new trust and the SMSF must not temporarily obtain legal title. You can refinance an SMSF loan to access a lower rate, extend the loan term, or switch lenders, but each new borrowing must satisfy the LRBA rules in force at the time.

Call one of our team or book an appointment at a time that works for you to discuss your SMSF commercial loan application and confirm the property you are considering qualifies under the current rules.

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