Why Should You Lease Commercial Property Back to Your Business

Your Self-Managed Super Fund can borrow to buy commercial property and lease it back to a business you own or control.

This strategy lets your business pay rent into your super fund while building a property asset within the fund. The arrangement needs to meet specific legal conditions, but it remains one of the most practical ways to combine commercial property ownership with retirement planning. The 2026 changes that banned residential borrowing in SMSFs did not affect commercial property loans, and leasing to a related party business is explicitly permitted under the rules that govern in-house assets.

What Makes Commercial Property Different Under SMSF Rules

Commercial property held in an SMSF and leased to a related party does not count as an in-house asset, provided the property meets the business real property definition. Business real property means land and buildings used wholly and exclusively in one or more businesses. The business using the property does not need to be the entity that owns it. Your fund can own the property and your trading company or partnership can operate from it.

The lease must be made on arm's length terms at market value. A valuation is typically required to confirm the rent charged reflects what an unrelated tenant would pay for the same premises in the same condition.

How Limited Recourse Borrowing Works for Commercial Property

An SMSF cannot borrow money in the usual way. A Limited Recourse Borrowing Arrangement lets the fund borrow to acquire a single asset, which is held in a separate bare trust until the loan is repaid. If the loan defaults, the lender's recourse is limited to the asset in the trust. No other fund assets are at risk.

The borrowed funds can cover the purchase price, loan establishment costs, and stamp duty. They cannot be used to improve the property after purchase. Any upgrades or renovations must be funded from the SMSF's existing cash or income.

For Munno Para West business owners, this structure is particularly relevant where a sole trader or partnership operates from leased premises and wants to transition that property into super. The fund borrows to buy the premises, the business continues operating from the same location, and rent is paid into the fund rather than to a third-party landlord.

Setting Up the Lease Agreement Between Your Fund and Your Business

The lease between your SMSF and your related business must be documented in writing and comply with commercial leasing laws in South Australia. The rent must reflect current market rates, lease terms must be comparable to similar commercial tenancies in the area, and outgoings must be allocated consistently with standard practice.

Consider a scenario where a carpentry business operates from a workshop in the northern industrial pocket near the Stebonheath Road corridor. The proprietor's SMSF borrows to purchase the workshop for $450,000 with a 30 percent deposit. The business enters a lease with the fund at $28,000 per annum plus outgoings, based on a rental valuation. The rent is paid monthly from the business bank account into the SMSF's account. The SMSF uses that income to meet loan repayments, with any surplus retained in the fund.

The lease cannot favour the business over an unrelated tenant. Rent-free periods, below-market rent, or uncommercial repair obligations would breach the arm's length requirement and expose the trustee to compliance action.

Deposit and Loan Conditions for SMSF Commercial Borrowing

Most lenders offering SMSF commercial loans require a deposit between 30 and 40 percent of the purchase price. Loan-to-value ratios for commercial loans under an SMSF structure are lower than for residential property because the lending risk is assessed differently. The deposit must come from existing SMSF assets, member contributions, or rollovers from other super funds.

Interest rates are typically higher than standard commercial lending because of the limited recourse nature of the arrangement. Variable rates are more common than fixed rates, and lenders often restrict loan terms to a maximum of 15 years. Some lenders require a personal guarantee from the business owner, but that guarantee must also be limited in recourse to the property held in the bare trust, not to other SMSF assets.

Tax Treatment of Rental Income and Capital Gains

Rental income received by the SMSF is taxed at 15 percent during the accumulation phase. Where the SMSF is in pension phase and the member has met a condition of release with a nil cashing restriction, income from assets supporting the pension is tax-free. The property cannot be used to support a pension if the member has not yet met a condition of release, such as reaching preservation age or retiring.

Capital gains on property sold by the SMSF are taxed at 15 percent if held for less than 12 months, or 10 percent if held for more than 12 months and the fund is in accumulation phase. Capital gains on assets supporting a pension are not taxed.

Where the member's total superannuation balance exceeds $3 million at the end of the financial year, Division 296 tax of 15 percent applies to the proportion of earnings attributable to the balance above that threshold. An additional 10 percent applies to balances above $10 million. These thresholds are indexed annually.

Why This Strategy Suits Established Businesses in Munno Para West

Munno Para West sits within the northern growth corridor, with a mix of residential development and light industrial precincts. Business owners in trades, logistics, and service industries often lease premises in nearby Angle Vale, Virginia, or Gawler before considering ownership.

Using super to buy the premises shifts rent from a deductible business expense into a super contribution equivalent. The business still claims a tax deduction for rent paid, and the individual benefits from compulsory super contributions plus rental income accumulating in a concessionally taxed environment. Over the loan term, the fund builds equity in a commercial asset that can either continue generating income in retirement or be sold to fund a pension.

This approach works when the business has stable cash flow, the member has sufficient super balance or capacity to make additional contributions for the deposit, and the property is genuinely used for business purposes. It does not suit speculative purchases or properties that may later be converted to residential use.

When Refinancing or Selling the Property

An existing SMSF commercial loan can be refinanced without triggering a new arrangement, provided the refinanced loan relates to the same asset, maintains the limited recourse character, and meets arm's length terms. A significant change to the loan structure, such as increasing the borrowing to acquire a different property, may be treated as a new arrangement and must comply with current rules.

If the property is sold, the proceeds are returned to the SMSF and can be reinvested or used to fund a pension. The business must vacate or enter a lease with the new owner. Selling the property does not affect the business structure, but it removes the rental income stream that was supporting loan repayments and super growth.

If you are operating a business in or around Munno Para West and considering whether your super fund could own your premises, call one of our team or book an appointment at a time that works for you. We work with SMSF trustees, accountants, and specialist lenders to structure loans that meet both the legal requirements and your long-term goals.

Frequently Asked Questions