Simple hacks to buy vacant land with SMSF in Coomera

Vacant land in Coomera purchased through a Self-Managed Super Fund can be acquired using borrowed funds if the land qualifies as business real property under the Superannuation Industry (Supervision) Act 1993.

Can You Still Borrow to Buy Vacant Land Through Your SMSF

Yes, but only if the land satisfies the business real property definition under section 66 of the SIS Act. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 banned new limited recourse borrowing arrangements for residential property from 10 August 2026, but commercial property purchases remain unaffected. Vacant land intended for future residential development does not qualify. Vacant land currently used wholly and exclusively in a business does.

Consider a fund acquiring a 2,000 square metre commercial block on Old Pacific Highway, Coomera. The land is leased to a logistics operator storing vehicles and equipment. The tenant runs a business from the site. The SMSF can borrow to purchase that land because it is used wholly and exclusively in a business at the time of acquisition. The business does not need to be operated by the fund itself.

If the same block were vacant with no current business use, it would not qualify. The definition requires actual use in a business at acquisition, not intended use. A fund looking to purchase vacant land with the intention of leasing it to a related party for business purposes after settlement would need to acquire the land using existing fund assets without borrowing, then enter into the lease arrangement once ownership transfers.

Deposit Requirements and Borrowing Limits for SMSF Property Loans

SMSF lenders typically require a minimum deposit of 30 to 35 percent of the purchase price, meaning the maximum loan-to-value ratio sits between 65 and 70 percent. Some lenders offer higher LVRs for commercial property in well-located areas with strong tenant covenants, but these are assessed case by case. The fund must have sufficient liquidity to cover the deposit, stamp duty, legal costs, and loan establishment fees without breaching contribution caps or liquidity requirements.

A fund with a balance of $450,000 could potentially borrow up to $650,000 to acquire a commercial property with a purchase price around $1 million, assuming a 35 percent deposit and additional settlement costs of approximately $50,000. The trustees would need to ensure the fund can service the loan from rental income without relying on future contributions. Lenders assess serviceability based on rental income at acquisition, not projected increases.

What the Business Real Property Definition Means for Coomera Land

Business real property means land and buildings used wholly and exclusively in one or more businesses. If the property contains a dwelling for private or domestic purposes, it can still qualify if the dwelling occupies no more than 2 hectares and the main use of the whole property is not domestic or private. The classification depends on actual use at the time of acquisition, not zoning or intended future use.

Coomera's northern industrial precinct near the Coomera Marine Precinct and Coomera Waters Business Park contains commercial and industrial blocks that typically qualify. Vacant residential land near Westfield Coomera or within residential estates along Foxwell Road does not. Mixed-use sites require careful assessment. A property with a small office and large storage yard used by a trade contractor would likely qualify. A property with a home-based office where the main use is residential would not.

The SMSF loan structure must comply with the limited recourse borrowing arrangement conditions, including that the asset is held in a bare trust, the loan is used to acquire a single asset, and lender recourse is limited to the asset being acquired. Borrowed funds cannot be used to improve the land after acquisition. Capital works such as fencing, landscaping, or building construction require separate funding from existing fund assets or future contributions.

How the Limited Recourse Borrowing Arrangement Works

The SMSF cannot borrow money and hold the asset directly. The asset must be held in a separate holding trust, typically a bare trust, with the SMSF as the beneficiary. The SMSF acquires a beneficial interest in the asset and obtains legal ownership after the loan is fully repaid. If the loan defaults, the lender's recourse is limited to the asset held in the trust. No other fund assets are at risk.

The bare trust deed and loan agreement must be structured correctly from the outset. The trustee of the bare trust is usually the same entity as the SMSF trustee, but acting in a different capacity. The land title is registered in the name of the bare trustee, with a notation that the property is held on trust. Rental income flows from the tenant to the bare trust, then to the SMSF. Loan repayments are made by the SMSF to the lender. Once the loan is repaid, the legal title transfers from the bare trustee to the SMSF trustee.

A related party lender such as a fund member can provide the loan, but the terms must meet arm's length conditions. The ATO publishes safe harbour interest rates under Practical Compliance Guideline PCG 2016/5. Using rates below the safe harbour may result in rental income being assessed as non-arm's length income and taxed at the highest marginal rate. Most funds use an authorised deposit-taking institution as the lender to avoid this risk.

Tax Treatment for Rental Income and Capital Gains

Rental income received by the SMSF during the accumulation phase is taxed at 15 percent. If the fund holds the property in pension phase, rental income is tax-free. Capital gains on the sale of an asset held for more than 12 months are eligible for a one-third discount, reducing the effective tax rate to 10 percent during accumulation phase. Capital gains realised during pension phase are also tax-free.

Vacant land leased to a related party for business use must be leased on arm's length terms at market rent. The lease must be documented and independently valued. Leasing to a related party at below-market rent may breach the sole purpose test or result in non-arm's length income treatment. The fund cannot lease the land to a member or related party for private or domestic use.

From 1 July 2026, Division 296 tax applies where a member's total superannuation balance exceeds $3 million. An additional 15 percent tax applies to the proportion of earnings attributable to the amount above that threshold. Where the balance exceeds $10 million, an additional 10 percent applies to earnings above that second threshold. Outstanding LRBA amounts entered into on or after 1 July 2018 are included in the total superannuation balance in certain circumstances, including where the LRBA is with an associate of the fund.

Refinancing an Existing SMSF Loan After the Residential Ban

Existing residential LRBAs entered into before 10 August 2026 are grandfathered. The residential LRBA prohibition does not apply to maintaining or refinancing a borrowing under an arrangement entered into before that date. However, a significant change to the terms or conditions of an LRBA may end the existing arrangement and create a new one subject to the post-commencement rules. The ATO had not published updated guidance on the circumstances in which a refinancing arrangement might be treated as a new LRBA as at 2 July 2026.

Refinancing of commercial loans is not affected by the 2026 residential ban. The refinanced loan must relate to the same single asset, maintain the limited recourse character of the original arrangement, and meet arm's length terms. A fund that acquired vacant commercial land in Coomera under an LRBA before the ban and later developed the site for business use can refinance that loan without restriction, provided the asset remains business real property and no additional borrowing is used for the development works.

Wagstaff Finance works with SMSF trustees in Coomera to assess whether vacant land qualifies as business real property and to structure compliant limited recourse borrowing arrangements. Call one of our team or book an appointment at a time that works for you.

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