An SMSF can still borrow to buy an industrial property, but the property must now be business real property.
The rule applies to loans entered into on or after 10 August 2026. This article is for Beenleigh trustees weighing up a commercial SMSF loan. It explains what the property must satisfy and how the loan is structured. It also covers what to ask before you apply.
Can an SMSF Buy an Industrial Property With a Loan?
Yes. A Self-Managed Super Fund loan is allowed under a limited recourse borrowing arrangement (LRBA), and an industrial property can qualify if it is business real property. The ATO states that LRBAs are not banned and that their operation has not changed.
The change is to the type of real property you can finance. For an LRBA entered into on or after 10 August 2026, the property can only be business real property. This applies whether the lender is a bank, a non-bank lender or a related party. An SMSF can still buy residential property that is not business real property, but it cannot borrow to do so.
What Is Business Real Property and Why Does It Matter for Your Loan?
Business real property generally means land and buildings used wholly and exclusively in one or more businesses. A warehouse or industrial unit leased to a trading business is the usual example.
The test applies when the loan starts and for the life of the loan. If the property stops being used wholly and exclusively in a business, the fund has breached the law against borrowing and compliance action may apply. Between tenants, the property does not lose its status only because you are looking for a new tenant. It does if you abandon plans to lease it.
If the premises are waiting on business or occupancy approvals, the ATO says the fund needs to show that the business has commenced when the LRBA is entered into. Raise this with your lender early. The ATO has also opened consultation on draft updates to its business real property ruling, so the guidance may be refined.
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How Does a Bare Trust Work in an SMSF Property Loan?
Under an LRBA, the property is held in a separate holding trust, often called an SMSF bare trust, while the fund holds the beneficial interest. The fund gets legal ownership once the loan is repaid, and the lender's recourse is limited to the asset.
Several conditions shape what you can do:
- The borrowed money must buy a single asset or a collection of identical assets treated as one.
- You cannot place an existing fund asset into the arrangement.
- Loan funds can pay for repairs and maintenance, but not capital improvements.
- The holding trust cannot be a discretionary trust.
The trade-off is flexibility. If you plan to redevelop the building, you would need to fund that from the fund's other resources, not the LRBA.
Example: An SMSF Buying a Warehouse Leased to a Member's Business
Consider two Beenleigh business owners whose SMSF wants to buy a warehouse that their own trading company will lease. The loan is $600,000, and they use an illustrative rate of 6.75% p.a. over 25 years.
The lender will want the fund to meet the sole purpose test, so the purchase must be for retirement benefits and not for current personal benefit. Because the lessee is a related party, the rent must be set at an arm's length level and documented. If it is not, the income can be treated as non-arm's length income and taxed at 45 per cent. The property will meet the business real property test only if the company is already using the warehouse wholly and exclusively in its business when the LRBA is entered into, and it must stay that way for the life of the loan. If use cannot start immediately, the fund must be able to show the business has commenced.
At 6.75% p.a., repayments on $600,000 over 25 years come to roughly $4,145 per month on principal and interest. This is an illustration only, not a quote. The fund's rent and contributions need to cover that amount plus holding costs, and the trustees keep a buffer in case the rate rises on a variable loan.
The outcome is a structure that suits the loan rules and gives the lender clear evidence of cashflow. The trade-off is concentration risk: a large share of the fund sits in one property leased to a related business. If the business struggles, both the rent and the member's income can be affected at once.
SMSF Rental Income Tax and the CGT Discount
A complying SMSF is generally taxed at 15 per cent on assessable income, including net capital gains. If it owns the asset for at least 12 months, it can get a one-third CGT discount, which gives an effective rate of 10 per cent on the discounted gain.
This is not a fixed rate. The result depends on the cost base, capital losses and the fund's overall tax position. Pension phase is different again. A capital gain is not automatically exempt because a fund has started paying a pension, and the exemption depends on the method used and the fund's circumstances. Division 296 tax also applies from 1 July 2026 to members with total super balances above $3 million. LRBA amounts are never counted in the balance for that tax. Speak with your accountant before you commit, as tax outcomes depend on your fund's position.
How to Compare SMSF Lenders for a Commercial Property
Compare SMSF lenders on loan to value ratio (LVR), deposit requirements, rate type and documentation, because these vary by lender and by property. Industrial property usually needs a larger deposit than many people expect, depending on the lender and the asset.
A fixed rate gives repayment certainty, but it can limit extra repayments and may involve break costs if you exit early. A variable rate moves with the market, so your repayments can rise or fall. Your borrowing capacity depends on the fund's assets, contributions and expected rental income. You can check the numbers with our mortgage repayment calculator and read more about borrowing capacity.
The fund also needs enough liquidity to pay for costs after the deposit, such as stamp duty, loan establishment and ongoing expenses. A commercial loans specialist can explain how lenders assess a fund. Our SMSF loans page outlines how we assist with the application. If you are refinancing an existing arrangement, loans entered into before 10 August 2026 are not affected by the new rule, including when they are maintained or refinanced after that date.
We work with trustees across the region through our Beenleigh mortgage broker team. Call one of our team or book an appointment at a time that works for you, and we will talk through your fund's position, your lender options and the business real property test before you sign a contract.
Frequently Asked Questions
Can an SMSF borrow to buy an industrial property?
Yes, through a limited recourse borrowing arrangement. For loans entered into on or after 10 August 2026, the property must be business real property.
What is business real property?
It generally means land and buildings used wholly and exclusively in one or more businesses. For a financed purchase, it must meet this test when the loan starts and for the life of the loan.
Do the new rules affect existing SMSF property loans?
An LRBA entered into before 10 August 2026 is not affected by the new rule, including when it is maintained or refinanced later. Binding contracts exchanged before that date are also treated differently.
What tax applies to an SMSF's capital gain on a property?
A complying SMSF is generally taxed at 15 per cent, with a one-third CGT discount if the asset is held for at least 12 months. Outcomes vary, so speak with your accountant.
