SMSF Commercial Property After 10 August 2026

Start with the rule that was always there. An SMSF is generally banned from borrowing money. A limited recourse borrowing arrangement, or LRBA, is one of the carve-outs from that ban. So fund borrowing has never been ordinary borrowing. It's an exception, and exceptions have edges.

On 10 August 2026 the edge moved. In the ATO's words, an LRBA entered into on or after that date to purchase real property ‘can only be used to acquire business real property’. Everything else came out of the exception, and nothing else about how LRBAs work changed.

Which leaves one class of real property standing on the borrowing side. That's why this page exists. For years, business real property has been the exception to the rules on buying from a related party and leasing to one. From 10 August 2026 it also decides what a fund can borrow to buy.

Two things sit outside the change. A fund that already entered an LRBA for real property before 10 August 2026 isn't caught, and can keep or refinance it. And a binding contract exchanged before 10 August 2026 sits outside the change even where settlement or the LRBA happens later. On new arrangements the lender's identity makes no difference.

Now the part a commercial page can quietly leave out, so it goes early instead. Buying and borrowing are two different questions. A fund with cash can still put it into residential investment property, provided the fund meets every other regulatory rule. What it can't do is finance that purchase under a new LRBA.

Over the top of all of it sits the sole purpose test. Every investment has to be made and maintained solely to provide retirement benefits, or death benefits if a member dies before retirement. Contravene it and the fund loses its tax concessions, and trustees can face compliance action, penalties included. Break the investment restrictions and the ATO's own list runs to four: penalties, making the fund non-complying, disqualifying the trustee, and prosecution. That test didn't move because the borrowing rules did.

The definition is one sentence long, and it stops before the hard part. The ATO says business real property ‘generally means land and buildings used wholly and exclusively in a business’. Read it fast and ‘wholly and exclusively’ sounds like one hundred percent of everything, all the time. It doesn't say what happens to the empty half of a yard, or to a box of somebody's personal gear in the corner. The word ‘generally’ is in there for a reason.

The Commissioner splits the question two ways. Where part of a property isn't used at all, the test is still met, as long as the property is used in business to some appreciable degree. The ATO's own example is a factory with room to expand: the spare ground sits empty and the property still qualifies. Where a property is used for something else at the same time, that's where it's more likely to fail.

There's no percentage anywhere in this. The ATO says plainly that no prescriptive test applies and the question is one of degree. It also applies a de minimis rule, which just means very small things get ignored, so non-business use that's minor or trifling is forgiven, like an employee storing a few personal items at a factory. One carve-out is written down. A primary production property that has a dwelling on it can still count as used wholly and exclusively in a business, so long as the dwelling occupies no more than 2 hectares and domestic use isn't the main use of the land.

FAA doesn't rule on whether a property passes, and nobody should do that from a web page. The ATO points anyone with a specific property at its detailed ruling, SMSFR 2009/1, which is the Commissioner's view rather than binding law. What FAA can do is explain the test in plain words and put you in front of the specialist SMSF accountants and solicitors who can apply it to your fund.

Both examples come out of the ATO's own ruling, so they are the Commissioner's view of where the line sits rather than a worked-up hypothetical.

The pass. A doctor owns a house that her medical practice uses, and only her practice uses it. As trustee of her SMSF she wants the fund to buy the house at market value and lease it back so the practice can keep operating there. The ATO's view: the house was built as residential premises but isn't used that way, it's used wholly and exclusively in the medical practice business, it's business real property, and once the fund owns it, it isn't an in-house asset of the fund.

The fail. A mechanic runs his business from the garage at his home. The ATO's view: a business does operate on the property, but the property is also partly used as a residential property, that residential use isn't incidental and relevant to the business, and it isn't minor or trifling either. So it isn't business real property, and he can't sell the land to his fund without the fund breaching the related party acquisition rule.

And the workaround, closed in advance. The ATO says property merely used in a business for a short period that happens to line up with the fund acquiring it, but otherwise used for non-business purposes, doesn't meet the business use test.

Read those two side by side and the line stops being about property types. Same kind of building, different use, different answer. FAA won't tell you which side your own property sits on. That's a call for your adviser, with the facts in front of them.

The sentence sits on the ATO's investment restrictions page, directly after the definition of business real property: ‘It's an exception to the in-house asset and related party acquisition rules’. That's been true for years. August 2026 added a third job to the same term, which is what a fund is allowed to borrow to buy.

Job one, buying. A fund can't acquire an asset from a related party at all, apart from a short list of exceptions, and business real property at market value is on that list. So a business owner can sell their own trading premises to their own fund. They can't sell their own rental house to it. Related party reaches further than most people expect: members, their relatives, business partners and their spouses and children, and any company or trust a member controls or influences. Relatives stretch as far as an uncle, an aunt, a niece or a nephew.

Job two, leasing. An in-house asset includes a fund asset leased to a related party, and in-house assets can't be more than 5% of the market value of the fund's total assets. A premises worth a real share of a fund would break that cap on day one. Business real property leased between a fund and a related party is an exception to it, and any lease has to be on an arm's length basis and reflect market value. Residential gets no such exception, which is the actual reason a member can't rent the fund's house.

ASIC puts the same thing in one line. A property in an SMSF can't be lived in or rented by a fund member or a related party, and if the property is a business premises, it ‘can be leased to a fund member, but you must follow specific rules and lease the property at market rates’.

Job three, borrowing. It arrived on 10 August 2026, when an LRBA over real property became limited to this one class.

Price is what both exceptions hang on. Buying needs market value, leasing needs market rates. Get either wrong and all or part of the income can be treated as non-arm's length income and taxed at the highest marginal rate. FAA doesn't set those values and doesn't check them. That's a valuer's job, and your own accountant's.

The ATO's starting point is that residential property is generally not business real property. Without a property investment business being carried on by an entity that lets others use the property for their own purposes, there's no relevant connection between the use of the property and a business.

The exception is a genuine property investment business, and the ATO shows both sides of it. Mr Wood owns 20 residential units leased to long-term residents, manages and maintains them full time, and lives on the lease income. The scale, the repetition and the purpose add up to a business, so the units are business real property, even though the tenants use them as homes. Ms Harrington owns 10 units and uses an agent to manage them. That isn't a property investment business, and her units don't qualify. The second example is the one worth reading twice, because it's the one that catches people out.

The ATO confirms the same thing from the other direction on the change page itself: residential real property that meets the definition of business real property can be acquired and financed under an LRBA, and it has to be business real property when the LRBA starts and throughout its life.

Use is what the ATO measures, every time. Worth being blunt about one thing here. Nothing FAA sources is offered as business real property, and a new-build investment house bought for a tenant to live in doesn't meet that description. FAA's residential stock is for a fund buying outright, with its own money. Whether any particular property is business real property is a question for your adviser, and the detail is in the ATO's ruling.

In the ATO's words, if the property is land on which commercial premises are leased, it doesn't stop being business real property only because the owner is looking for a new tenant. If the owner abandons plans to lease it, it does. The Commissioner takes that wider view deliberately, so a property's status doesn't keep changing on transient or peculiar changes in circumstance.

It matters because the status has to hold for the whole life of the LRBA, and the day the loan starts is only the first test. If a property stops being business real property partway through, the fund fails to maintain the LRBA according to the rules, has breached the law against borrowing, and compliance action may apply. The ATO gives that obligation three separate headings on one page, which tells you how much weight it carries.

ASIC adds a practical limit next to it. Under this kind of arrangement a fund can only purchase a single asset, and you can't change the character of the property until the loan is repaid. So repurposing the building when a tenant won't come isn't on the table either. None of that is something FAA monitors or manages. It's a trustee obligation, and it belongs with your adviser.

ASIC's Moneysmart is the consumer regulator, and on this subject it publishes both columns, what the arrangement costs and what can go wrong with it.

On cost, Moneysmart names the categories: advice fees, initial setup costs including legal fees, SMSF establishment costs and stamp duty, ongoing SMSF costs like accounting, audit, ASIC and ATO fees, ongoing property costs like rates, management, maintenance and insurance, loan costs, and extra life insurance costs where the fund is borrowing. It points out these often come out of super and reduce the overall balance. On risk, it lists higher costs, cash flow pressure, loan repayment risk if the property is vacant or contributions stop, the arrangement being hard to cancel or unwind, tax limits, and the no-major-alterations rule.

No dollar figures appear on this page. FAA has none to publish, and Moneysmart lists categories rather than amounts. For a sense of scale, ASIC cites ATO figures: more than 653,000 SMSFs as at 31 December 2025, holding over $1 trillion in assets, with around 17.5% of SMSF assets held in residential and commercial property. That 17.5% covers both classes together, so it isn't the commercial share of anything, and the Moneysmart page carrying it was last updated 23 July 2026.

ASIC's Moneysmart has a section on SMSF property sales tactics. Property developers must hold an AFS licence if they provide financial advice, including advice about setting up an SMSF. Developers may have business relationships with the professionals they recommend, and may receive referral fees or benefits worth thousands of dollars. Be cautious if you feel pressured, and watch for sales tactics like competitions, free flights to sales meetings or free meals. And this: ‘Be cautious when advisers recommend each other's services. It's possible that commissions or referral fees are paid to people involved in the transaction (like property developers or real estate agents). Referral fees can create conflicts of interest and influence advice.’

FAA is a real estate agency and developers pay it. So, FAA's disclosure, in its published wording:

FAA Property earns a commission from builders and developers when a property purchase proceeds. The strategy session itself costs you nothing. Because we're paid by the supply side, you should weigh our recommendations with that in mind.

Anyone advising you on an SMSF has to hold an AFS licence or be authorised by one, and ASIC's adviser register is where you check. No FAA entity holds its own AFSL.

Nothing here is advice about your fund, and it can't be. The step after reading a test like this one is someone licensed looking at your own fund and your own property. Book an SMSF Property Strategy Call and you'll get FAA's part of it: the residential purchase a fund can still make outright, with the costs modelled, plus introductions to specialist SMSF accountants and solicitors. The session costs you nothing, and who pays for it is written further up this page. If a business premises is what you're after, ring a commercial agent and your own adviser instead.