How to Buy Commercial Property Using SMSF

Want to own your business premises, reduce tax and grow your retirement wealth at the same time? Buying commercial property through an SMSF is one of the most powerful wealth-building strategies available to Australians, when it’s done correctly.

An SMSF commercial property purchase allows your super fund to earn rental income, benefit from long-term capital growth and, in some cases, lease the property back to your own business. However, strict Australian Taxation Office (ATO) rules apply, lending works differently and mistakes can be costly. Here’s a guide on how to buy commercial property with an SMSF, what the rules are and how to do it the right way.

What Is an SMSF?

A Self-Managed Super Fund (SMSF) is a private super fund you manage yourself. As a trustee, you control how your retirement savings are invested.

Unlike retail or industry super funds, you make the decisions. That control comes with legal responsibilities, record-keeping requirements and compliance obligations under superannuation law.

Why Use an SMSF to Buy Commercial Property?

Commercial property finance through super can offer several advantages:

Lower Tax on Income

Rental income inside an SMSF is generally taxed at 15%, which is lower than most personal tax rates. In the pension phase, this may drop to 0%.

Ability to Lease to Your Own Business

SMSFs are allowed to lease business real property to a related business at market rates. This means your business pays rent to your super fund, not a landlord.

Long-Term Capital Growth

Commercial property can provide steady income plus potential value growth over time. This helps diversify retirement savings beyond shares.

Asset Protection

Super assets are generally protected from creditors, which can be beneficial for business owners.

Key SMSF Property Rules You Must Follow

Before purchasing, your SMSF must meet strict compliance requirements.

• The investment must satisfy the sole purpose test (providing retirement benefits).

• All transactions must be conducted at arm’s length and market value.

• The property cannot be used for personal purposes.

• The purchase must align with the fund’s documented investment strategy.

• Borrowing must be structured correctly under super law.

Breaching these rules can lead to penalties, loss of tax concessions and ATO action.

How SMSF Loans Work (LRBA Explained)

Most SMSFs use borrowing to buy commercial property through a structure called a Limited Recourse Borrowing Arrangement (LRBA).

Under an LRBA:

• The loan is secured only against the property, not other SMSF assets.

• The property is held in a separate holding trust until the loan is repaid.

• Lenders usually require a 30–40% deposit.

• Interest rates are typically higher than standard home loans.

Because SMSF lending is specialised, working with a broker experienced in SMSF commercial property loans is essential.

Step-by-Step: Buying Commercial Property with an SMSF

Buying commercial property through your SMSF follows a very specific legal and financial process. Each step must be completed in the correct order to stay compliant with superannuation laws and lender requirements. Below is a step-by-step breakdown of how an SMSF commercial property purchase typically works, from fund setup through to settlement.

1. Set Up or Review Your SMSF

If you don’t yet have an SMSF, you’ll need to establish the fund, create a trust deed, appoint trustees and register with the ATO. Existing funds should review their structure and trust deed to ensure borrowing is allowed.

2. Confirm Your Budget

Your SMSF needs enough to cover:

• 30–40% deposit

• Stamp duty

• Legal and accounting fees

• Loan establishment costs

• Ongoing expenses and liquidity buffer

Lenders and advisers will assess whether the fund can service the loan.

3. Update the Investment Strategy

Your SMSF must have a written investment strategy explaining why commercial property suits members’ retirement goals, risk tolerance and diversification needs.

4. Set Up the Holding Trust

Before signing contracts, a separate bare trust (custodian trust) must be created to hold the property under the LRBA.

5. Find the Right Commercial Property

Look for properties with:

• Strong location and demand

• Reliable tenant prospects

• Suitable lease terms

• Growth potential

Warehouses, offices and retail premises are common SMSF investments.

6. Arrange SMSF Finance

A broker experienced in SMSF lending can help identify suitable lenders and structure the LRBA correctly.

7. Purchase Through the Correct Entity

The holding trustee signs the contract, not you personally. The SMSF provides the deposit and loan repayments.

Common SMSF Property Mistakes to Avoid

Many SMSF trustees run into trouble by:

• Using the property personally

• Failing to set up the holding trust before signing contracts

• Mixing personal and SMSF money

• Underestimating ongoing costs

• Not allowing for liquidity in the fund

Compliance errors can be expensive to fix.

Is Buying Commercial Property with SMSF Right for You?

Using your SMSF to invest in commercial property can be a powerful way to grow your retirement savings, but it isn’t suitable for everyone. This finance strategy tends to work best for people who:

• Have a substantial super balance

• Want long-term retirement wealth growth

• Understand property risks

• Are comfortable with trustee responsibilities

It may not suit those who need high liquidity or prefer a hands-off approach to investing.

Final Thoughts 

Buying commercial property through an SMSF can be a powerful long-term retirement strategy, but it comes with strict legal, tax and compliance obligations. From structuring the loan correctly to ensuring the investment meets superannuation rules, every step must be handled carefully. Proper planning, accurate documentation and a clear investment strategy are essential to avoid costly mistakes and protect your fund’s tax benefits.

Get Expert Help Before You Buy

SMSF property purchases involve super law, tax law, trust structures and specialised lending rules. Working with experienced professionals helps ensure the purchase is set up correctly from the beginning.

Richmond Residential can assist you in finding suitable commercial property and collaborate with your accountant and SMSF adviser to support a smooth, compliant purchase process.