Since 10 August 2026, self-managed super funds can no longer enter new limited recourse borrowing arrangements to buy residential property. Borrowing to buy commercial property inside an SMSF is still permitted, and survey data from August found around a quarter of SMSF investors planned to shift their focus toward commercial property as a result. The lending rules for SMSF loans on commercial property are specific, and the investment decision sits within super law, so it pays to understand both sides before a fund commits.
What the 2026 Changes Actually Did
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 bans SMSFs from entering new limited recourse borrowing arrangements, known as LRBAs, for residential property from 10 August 2026. Existing residential arrangements are grandfathered, and refinancing an existing residential SMSF loan remains possible.
Commercial property was left outside the ban. An SMSF can still use an LRBA to buy property such as offices, warehouses, retail premises or industrial units, subject to the usual super rules. Several lenders that previously offered residential SMSF loans have since narrowed their offering to commercial property only, so the lender panel for SMSF borrowing now looks quite different.
How an LRBA for Commercial Property Works
An LRBA has a specific structure. The property is held in a separate holding trust, often called a bare trust, while the SMSF makes the repayments and receives the rent. If the loan defaults, the lender’s recourse is limited to that property, so other assets in the fund are protected.
The rules also restrict what the borrowed money can be used for. The loan must fund a single acquirable asset, and borrowed funds can be used to repair or maintain the property but generally not to improve it. Plans to substantially renovate or develop a commercial property inside an SMSF need careful advice before any borrowing is arranged.
Can an SMSF Buy Commercial Property and Lease It to a Member’s Business?
Yes, in many cases. Business real property, which is property used wholly and exclusively in a business, is one of the few assets an SMSF can acquire from or lease to a related party, provided the lease is on commercial terms at market rent. This makes commercial property a common choice for business owners, but it brings strict compliance obligations, and a licensed financial adviser and SMSF specialist accountant are best placed to assess whether it suits the fund.
What Lenders Look For
Lenders assess an SMSF commercial loan differently from a personal loan. They look at the fund’s ability to service the debt from rental income and member contributions, the fund’s existing balance, and how much liquidity the fund will have left after the purchase. Many lenders want the fund to retain a buffer of cash or liquid assets after settlement to cover vacancies and costs.
Maximum loan-to-value ratios are lower than for residential lending. Many lenders cap SMSF commercial loans somewhere between 60% and 80% of the property’s value, depending on the property type, location and lease. Interest rates are also typically higher than on standard home loans, and pricing varies widely between the lenders still active in this part of the commercial loans market.
Why the Lease Matters So Much
For commercial property, the lease is central to the lending assessment. Lenders look at the tenant’s strength, the remaining lease term, rent review clauses and who pays outgoings. A property with a long lease to an established tenant is generally viewed more favourably than a vacant building or one with a short lease about to expire.
Vacancy is the biggest risk. Commercial properties can sit empty for months between tenants, and the fund still has to meet repayments and holding costs during that time. Conservative assumptions and cash buffers are essential parts of any SMSF commercial plan.
The Costs and Obligations Involved
An SMSF commercial purchase involves setting up the holding trust, legal documentation for the LRBA, valuations, and lender fees, on top of the ongoing costs of running the fund such as accounting and the annual audit. Those costs need to be weighed against the fund’s size, since they take a larger share of returns in smaller funds.
The investment also has to meet the sole purpose test, fit within the fund’s investment strategy and consider diversification. Concentrating a large share of a fund’s assets in one commercial property increases risk, particularly if members are approaching retirement and will need the fund to pay a pension.
Getting the Order Right
Because super law, tax and lending all intersect, the usual sequence is to confirm with a licensed financial adviser that the strategy suits the fund, set up the structure with an accountant and solicitor, then arrange finance. Talking to a broker early about which lenders still offer SMSF commercial loans, and on what terms, helps the adviser and accountant model a realistic plan.
Key Takeaways
- From 10 August 2026, SMSFs can no longer enter new borrowing arrangements to buy residential property, but commercial property is still allowed.
- Existing residential SMSF loans are grandfathered and can still be refinanced.
- An LRBA holds the property in a separate trust, limits the lender’s recourse to that asset and restricts using borrowed funds for improvements.
- SMSFs can lease business real property to a related party on commercial terms, subject to strict compliance rules.
- Lenders assess the fund’s rental income, contributions and post-purchase liquidity, with LVRs commonly between 60% and 80%.
- Professional advice from a licensed financial adviser and SMSF accountant is essential before an SMSF borrows for property.