If you run a business on the Far South Coast and you've been thinking about using your super to buy the office or warehouse you work from, you can still do that. Changes that came in during August mean self-managed super funds can no longer borrow to buy residential investment property, but borrowing to purchase business real property, including an office building, is unaffected.
What counts as business real property for an SMSF
Business real property means land and buildings used wholly and exclusively in one or more businesses. The building doesn't need to house your own business. An office property leased to an unrelated third party for their business use would qualify. What matters is the actual use of the property at the time your fund purchases it, not how it's zoned or marketed.
Consider a physio clinic owner in Merimbula who wants her SMSF to buy a standalone office building on Sapphire Coast Drive. The building is currently tenanted by an accounting firm on a commercial lease. Because the property is used wholly for business purposes, it qualifies as business real property. Her super fund can borrow to purchase it under a commercial loan structure known as a Limited Recourse Borrowing Arrangement. Once settled, the accounting firm continues paying rent to the super fund, and that rental income is taxed at 15 percent inside the fund. When the loan is eventually repaid, legal title transfers from the holding trust to the SMSF trustee.
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How the August 2026 changes affect existing and new arrangements
The restriction on residential property borrowing commenced on 10 August 2026. It doesn't apply to contracts exchanged before that date, and it has no effect on existing loans or the refinancing of those loans. If your SMSF already owns residential property under an LRBA, nothing changes. You can refinance that loan to another lender if you want to. The change restricts real property borrowing to business real property for arrangements entered into on or after 10 August 2026.
For office buildings, this timing doesn't matter. You can enter a new LRBA arrangement today to buy business real property without restriction. You can also refinance an existing commercial LRBA at any time, provided the loan continues to relate to the same property and maintains its limited recourse structure.
Deposit requirements and loan structure
Lenders offering SMSF loans typically require a deposit of at least 30 percent, though some will lend at 70 percent loan to value ratio for strong applications. The borrowed funds must be used to acquire a single asset. You can include costs like stamp duty and loan establishment fees, but you cannot borrow extra to renovate or improve the property after purchase. The property is held in a bare trust, separate from the SMSF's other assets. If the loan defaults, the lender's recourse is limited to the property in the trust and cannot touch other super fund assets.
In a scenario where a builder in Bega wants to purchase a workshop and office on two separate titles, the single asset rule becomes an issue. Even if the two buildings sit side by side and are sold together, they don't qualify as a single asset under the LRBA rules unless they're on the same title. The builder would need to purchase one property at a time, or buy them outright without borrowing.
Interest rates and rental income for commercial SMSF property
Commercial SMSF loans carry higher interest rates than standard home loans, typically between 1 and 2 percent above the equivalent commercial rate. Lenders price the risk differently because the loan is limited recourse and held through a super structure. Variable rates are more common than fixed, though some lenders offer short-term fixed terms. Rental income from business real property leased to a related party is excluded from the in-house asset rules, provided the lease is on arm's length terms at market value.
If you lease the property to your own business, the rent you charge must reflect what an unrelated tenant would pay for the same premises. The ATO expects arm's length terms on rent, lease duration, and lease conditions. Where the lease isn't at market value, the super fund may breach the sole purpose test or attract non-arm's length income tax, which is charged at 45 percent instead of the usual 15 percent.
Capital gains tax and pension phase considerations
When the SMSF eventually sells the property, capital gains tax applies unless the asset is supporting a pension at the time of sale. A complying SMSF is taxed at 15 percent on assessable income, including net capital gains, with a one-third discount for assets held at least 12 months. The effective maximum rate on a discounted gain is 10 percent, though the actual liability depends on the property's cost base, improvements, selling costs, and whether the fund has carried-forward capital losses.
Where a fund's assets are fully segregated as current pension assets at all times during the income year, a capital gain on disposal of those assets is disregarded. If the fund is fully in pension phase when the office building is sold, no capital gains tax is payable. If the fund has both accumulation and pension interests, only the proportion of the gain attributable to pension assets is exempt, determined by an actuarial certificate.
Division 296 tax and borrowing capacity
From 1 July 2026, members with a total superannuation balance over $3 million face an additional 15 percent tax on earnings attributable to the amount above that threshold, rising to 25 percent for balances over $10 million. LRBA amounts are disregarded when calculating a member's total superannuation balance for Division 296 tax purposes. This means the loan is netted off. If your SMSF owns an office building worth $1.2 million with a $600,000 loan against it, only the net equity of $600,000 counts toward your balance.
Rental income and any capital gain realised on sale may contribute to the Division 296 earnings calculation if your balance exceeds the threshold. An unrealised increase in the property's value does not. This distinction matters when deciding whether to hold commercial property inside super or purchase it through another structure. The borrowing itself reduces your reportable balance, but the income and eventual gain may still attract the extra tax if you're over the cap.
What you need before applying
An SMSF property loan application requires an SMSF trust deed, recent financial statements, evidence that the property qualifies as business real property, and confirmation of how the fund will service the loan. Lenders assess borrowing capacity based on rental income, contributions, and existing pension drawdowns. They also require a valuation of the property, a copy of any lease agreement, and proof that trustees have taken appropriate advice.
Most lenders want to see that the fund can service the loan from rental income alone, without relying on member contributions. If the property is vacant at purchase, they'll assess on projected rent supported by a market appraisal. You'll also need a bare trust deed, which is separate from the SMSF trust deed, and a solicitor or accountant experienced in SMSF property transactions.
Getting an office building into your super fund takes longer than a standard commercial purchase. You need the trust structures right, the property must genuinely qualify as business real property, and lenders move more slowly with SMSF applications. If you're thinking about it, the conversation should start months before you want to settle, not weeks. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Can I still use my SMSF to borrow money to buy an office building?
Yes. The August 2026 changes restrict SMSF borrowing for residential property only. Business real property, including office buildings used wholly and exclusively for business purposes, can still be purchased using a Limited Recourse Borrowing Arrangement.
What deposit do I need for an SMSF commercial property loan?
Most lenders require at least a 30 percent deposit for SMSF commercial loans, though some will lend up to 70 percent loan to value ratio for strong applications. The borrowed funds must be used to acquire a single asset and cannot be drawn down later for improvements.
Does the loan count toward my total superannuation balance for Division 296 tax?
No. LRBA amounts are disregarded when calculating your total superannuation balance for Division 296 tax purposes. Only the net equity in the property counts toward your balance, not the gross value.
Can I lease the office building to my own business?
Yes, but the lease must be on arm's length terms at market value. The rent, lease duration, and conditions must reflect what an unrelated tenant would pay, or the arrangement may breach the sole purpose test or attract non-arm's length income tax at 45 percent.
What happens to capital gains tax if the property is sold while the fund is in pension phase?
If the fund's assets are fully segregated as pension assets at the time of sale, the capital gain is disregarded and no tax is payable. If the fund has both pension and accumulation interests, only the proportion attributable to pension assets is exempt.
