What Are the Rules for Leasing SMSF Property to Your Business?

An SMSF can buy your business premises and lease them back to your business, but only if the property is business real property and the arrangement stays at arm's length. Since 10 August 2026, that test also decides whether a new SMSF commercial loan can be written at all.

This article is for Melbourne business owners weighing up whether to use super to buy commercial property that their own company will occupy.

Can I Buy Commercial Property With My SMSF and Lease It to My Own Business?

Yes. An SMSF can acquire business real property from a related party at market value, and can lease it to a related party business. The lease must be on commercial terms, with rent set at market rates and paid on time.

The in-house asset rules normally limit how much of a fund can be exposed to related parties. Business real property is the exception. If the SMSF's interest in the holding trust is leased to a related party, it is treated as an in-house asset unless the property would not be an in-house asset if the fund owned it directly. Business real property meets that exception.

This is why buying business premises with an SMSF is a structured, documented process rather than a simple transfer between you and your fund. Our SMSF commercial property loans page sets out how we approach the lending side.

What Counts as Business Real Property for an SMSF Loan?

Business real property is generally land and buildings used wholly and exclusively in one or more businesses. For a limited recourse borrowing arrangement over real property entered into on or after 10 August 2026, the property must meet this definition.

Two points matter in practice:

• The property must qualify when the loan is entered into and stay qualified for the entire life of the loan.
• A property being marketed as commercial does not make it business real property. Actual use decides it.

A warehouse with a flat above it that is rented out as a residence would fail the test. If a property stops being business real property while the loan is on foot, the fund has breached the borrowing prohibition, and regaining business use later does not erase the breach for the period it occurred.

A vacancy is treated differently. If you are looking for a new tenant, the property does not lose its status. It does if you abandon plans to lease it.

How Does the Limited Recourse Borrowing Structure Work?

Under a limited recourse borrowing arrangement, the SMSF trustee borrows to buy one asset, which is held in a separate holding trust (the SMSF commercial bare trust). The SMSF holds a beneficial interest and gains legal ownership once the loan is repaid. The lender's recourse is limited to that asset.

Several conditions apply to this type of loan:

• The loan must acquire a single asset. Separate titles cannot be bundled into one loan, even if the properties are similar.
• Borrowed funds can cover acquisition costs such as stamp duty and loan establishment, and repairs or maintenance. They cannot fund improvements.
• An asset the fund already owns cannot be moved into the arrangement.
• The holding trust cannot be a discretionary trust.

A related party can give a personal commitment to the lender, but their recourse is limited to the asset under the arrangement and cannot extend to other fund assets.

Illustrative Example: A Clinic Owner Buys Premises Through the Fund

Consider a Melbourne physiotherapist whose company rents its clinic. She and her partner are the only members of their SMSF, and they have enough in the fund to contribute a deposit. They want the fund to buy the premises and lease them back to the clinic company.

The structure has four parts. The fund agrees to buy at market value, supported by a valuation. A holding trust is established to hold the property. A lender approves the SMSF commercial loan, with the loan-to-value ratio and rate depending on the lender, the deposit and the property. The clinic company signs a written lease at market rent.

To show the cost of borrowing, at an illustrative 6.75% p.a., every $100,000 borrowed costs about $6,750 a year in interest if the loan is interest-only. Principal-and-interest repayments are higher. The cost to the fund rises with the borrowing, and the rent has to cover loan repayments, rates and other costs, so the fund also needs enough cash flow to cope if rent is late.

The outcome depends on discipline. The clinic pays rent into the fund's account, and the lease is reviewed against market rent. Several years in, the clinic company relocates. While the fund looks for a new tenant, the property stays business real property. Had the trustees decided to convert it to a residence instead, the fund would have breached the borrowing rules. They re-let it to another business, and the arrangement stays compliant.

Does a Related Party Lender Change the Rules?

A related party can lend to the SMSF, but the interest rate must not exceed an arm's length rate. The arm's length interest rate requirement applies to related party lenders. The business real property requirement for new LRBAs over real property applies whether the lender is a bank, a non-bank lender or a related party.

The ATO's PCG 2016/5 sets out safe harbour terms for these loans. A loan that does not meet every term is not automatically treated as non-arm's length, but the trustees need documentation showing that it is. Income that fails the arm's length test can be taxed as non-arm's length income at 45 per cent.

A lender who offers an offset account needs to be an authorised deposit-taking institution for that account to be a genuine bank deposit.

How Is Rent From the Business Taxed in the SMSF?

In accumulation phase, a complying SMSF is taxed at 15 per cent on assessable income, which includes rent. This is the core of SMSF commercial rental income tax.

If the fund sells the property after holding it for at least 12 months, it can claim a one-third CGT discount. That gives an effective rate of 10 per cent on the discounted gain. The actual liability depends on the cost base, any capital losses and the fund's overall position.

In pension phase, income from assets supporting a retirement income stream may be exempt. A capital gain is not automatically exempt because a pension has started. The result depends on whether the fund uses the segregated or proportionate method, and a fund with both accumulation and pension interests may only get a partial exemption. Speak with your accountant about how this applies to your fund before you buy.

What Happens if You Refinance an SMSF Commercial Loan?

Refinancing means a new loan contract for the same asset, with the same or a new lender. A loan entered into before 10 August 2026 can be refinanced without the property needing to meet the business real property test.

A loan entered into on or after that date must be refinanced while the property is still business real property. Any refinance must meet the law that applies when it happens, and changing the beneficiaries or borrowing for something outside the original arrangement can start a new arrangement. If you hold an existing loan, see our SMSF loan refinance page.

Choosing a Broker Who Understands the Structure

A broker who works with SMSF commercial lending can compare lenders on loan-to-value ratio, fixed or variable rate options, valuation requirements and how each handles related party leases. The right fit depends on your fund's liquidity and your tenant's lease. You can read more about SMSF Property Finance and how we work.

Call one of our team or book an appointment at a time that works for you. We will check the business real property test, the lease and the loan structure before you sign a contract.

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