If you are a WA government employee thinking about using super to buy an industrial property, the key test is whether the property is business real property.
For a limited recourse borrowing arrangement (LRBA) entered into on or after 10 August 2026, the ATO says the property can only be business real property. That generally means land and buildings used wholly and exclusively in one or more businesses. An industrial unit or warehouse leased to a business tenant is the type of asset this rule is built around. The rule applies whether the lender is a bank, a non-bank lender or a related party. This article is general information only. Speak to a licensed specialist before you act.
Can You Use Super to Buy a Commercial Property With a Loan?
Yes, an SMSF can borrow to buy commercial property through an LRBA, but only if the property is business real property when the loan is entered into and for the life of the loan. Not every commercial property qualifies. The property must be held in a separate holding trust, often called an SMSF bare trust, and the lender's recourse is limited to the asset.
The SMSF trustee gets a loan to buy one asset, and the SMSF gains a beneficial interest in it. Legal ownership passes to the fund once the loan is repaid. The borrowed money can cover the purchase, costs such as stamp duty and loan establishment, and repairs or maintenance. It cannot fund improvements to the property. You also cannot put an asset the fund already owns into the arrangement.
The trade-off is that the structure adds legal setup, ongoing compliance and a loan that is tied to a single asset. If the property performs poorly, the fund's other assets are protected from the lender, but your retirement savings still carry the concentration risk.
Does Your Industrial Property Meet the Business Real Property Rule?
The property must be business real property when the loan starts and stay that way for the life of the loan. If it stops being wholly and exclusively used in a business, the fund may breach the borrowing rules and compliance action may apply.
The ATO says a property leased to a tenant does not lose its status just because the owner is between tenants. It does lose it if the owner abandons plans to lease it. If the premises cannot start business use straight away because you are waiting on approvals, the fund needs to show the business has commenced when the loan is entered into and that the property will be used in it.
This matters for industrial purchases that come with a vacant shed or a mixed-use arrangement. The ATO refers to SMSFR 2009/1 for detailed guidance, and it has draft updates to that ruling out for consultation. Your adviser should check the current position before you sign a contract.
Contracts Exchanged Before 10 August 2026 and Existing Loans
The new rule does not apply if the SMSF exchanged a binding contract before 10 August 2026, even if settlement or the loan comes later. It also does not apply to an LRBA already in place before that date, including when it is maintained or refinanced afterwards.
If you are reading this with a contract not yet exchanged, the new rule applies to you. If you already hold a property under an older LRBA, a refinance does not bring it under the new rule. The ATO notes that a significant change to a contract's fundamental terms may count as a new arrangement, so avoid reworking a contract without advice.
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How Does the Sole Purpose Test Affect an Industrial Purchase?
The SMSF sole purpose test requires the fund to be maintained only to provide retirement benefits to members. Buying an industrial property should be driven by that goal, not by a benefit to you or a related party today.
One area to watch is related party dealings. A related party lender must not charge more than an arm's length rate of interest. The ATO's PCG 2016/5 sets out safe harbour terms for LRBAs. A loan that does not meet every term is not automatically treated as non-arm's length, but the trustees need documents showing it was. Income that is non-arm's length is taxed at 45 per cent.
What Loan Terms and Deposit Requirements Should You Expect?
SMSF commercial loan terms vary by lender, and deposit requirements and LVR limits are usually stricter than on a standard home loan. Expect to need a larger deposit than for a residential purchase, and the exact figure depends on the lender and the property.
Lenders also look at the fund's liquidity, the lease and the tenant. The deposit must come from within the fund, so your contributions history matters. For 2026-27 the concessional contributions cap is $32,500 and the non-concessional cap is $130,000. The non-concessional cap drops to nil if your total super balance was $2.1 million or more on the previous 30 June.
On rates, you can compare a variable rate with an SMSF fixed rate. Fixing gives certainty on repayments but may involve break costs if you exit early. A variable rate can move with the market and may offer features such as an offset account. Genuine offset accounts from an authorised deposit-taking institution are allowed, while offsets from non-bank lenders are not bank deposits.
An SMSF mortgage broker can help you compare SMSF lenders. You can also check your borrowing capacity before you start looking at listings.
Worked Example: Repayments on an SMSF Industrial Loan
A fund borrowing $500,000 over 25 years at an illustrative 6.75% p.a. would have principal-and-interest repayments of about $3,455 a month. This rate is for illustration only and is not a current offer.
Consider a WA government employee whose SMSF has a leased warehouse in its sights. The fund borrows $500,000 and the tenant pays rent into the fund. The monthly repayment of about $3,455 comes from rent plus member contributions. Over a year that is roughly $41,460. If rent covers only part of that, the shortfall must come from contributions or fund cash.
The outcome depends on the lease. Where the rent covers most of the repayment, the fund stays liquid. Where it does not, a vacancy could put pressure on cash flow. That is why a lender and an accountant will both ask for the lease terms before approving the loan.
SMSF Rental Income Tax and the CGT Discount
A complying SMSF in accumulation phase pays 15 per cent tax on assessable income, including net capital gains. If the asset was held for at least 12 months, a one-third CGT discount applies, giving an effective rate of 10 per cent on the discounted gain.
In pension phase, a fund may receive an exemption on income from assets supporting a retirement income stream. A capital gain is not automatically exempt just because a pension has started, and the result depends on the method used. Division 296 tax also applies from 1 July 2026 to members with a total super balance above $3 million, and LRBA amounts are never included in the balance for that tax. Tax outcomes depend on your circumstances, so ask your accountant before you buy.
Where Your Wider Finances Fit
An SMSF loan sits apart from your personal borrowing, but your overall position still counts. If you are weighing it against a property investment outside super, or are reviewing existing debts through loan refinancing, compare the costs and risks side by side. Our page on SMSF loans for public servants outlines how we work with government employees, and our WA government employee home loans page covers your personal borrowing.
Call one of our team or book an appointment at a time that works for you. We will talk through your fund, the business real property rule and your loan options.
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. It must meet this test when the loan starts and throughout the loan.
Does the new rule affect existing SMSF loans?
No. Loans entered into before 10 August 2026 are not affected, including when they are maintained or refinanced. Contracts exchanged before that date are also covered by transitional rules.
How is SMSF property gain taxed?
A complying SMSF in accumulation phase pays 15 per cent on net capital gains, with a one-third discount after 12 months. Speak to your accountant about your situation.
