When your SMSF borrows to buy commercial property, the law requires a bare trust to sit between the fund and the title deed. Most guides on this topic are written by accountants — they explain the legal structure but skip the part Melbourne business owners actually struggle with: getting the loan approved. This guide covers both: how the bare trust works, what commercial SMSF lenders require in September 2026, and the setup sequence that avoids the most expensive mistakes.
Key fact: Since 10 August 2026, new SMSF residential LRBAs are banned — but commercial property borrowing through a bare trust is completely unaffected. For Melbourne business owners buying their own office, warehouse or retail premises through super, the bare trust + LRBA structure remains the standard path.
Do You Need a Bare Trust to Buy Commercial Property Through Your SMSF?
Yes — if your SMSF is borrowing to purchase the property. The Superannuation Industry (Supervision) Act 1993 requires every SMSF loan to be structured as a Limited Recourse Borrowing Arrangement (LRBA). The bare trust (also called a holding trust or custodian trust) is the legal vehicle that makes the LRBA work. A separate trustee holds the property's legal title on behalf of the SMSF until the loan is fully repaid. If the fund defaults, the lender can only claim the specific property in the bare trust — not the SMSF's other assets.
If your SMSF is paying cash for the commercial property (no borrowing), a bare trust is not required. But in practice, most Melbourne business owners financing a commercial purchase through super will need one.
For a broader overview of SMSF lending structures and how IFG helps Melbourne clients navigate them, see our SMSF service page.
How Does a Bare Trust Structure Actually Work?
The bare trust is deliberately simple. It has three moving parts: the bare trustee (who holds legal title), the beneficiary (your SMSF, which has the beneficial interest), and the bare trust deed (the legal document that connects them). The bare trustee is passive — it has no discretion and acts solely on the SMSF trustee's instructions. All rental income flows to the SMSF. All property expenses are paid by the SMSF. The bare trust itself does not lodge a tax return.
Here is how the parties relate in a typical Melbourne commercial SMSF purchase:
| Party | Role | What They Do |
|---|---|---|
| SMSF Trustee | Beneficial owner | Makes all decisions, receives rental income, pays expenses and loan repayments |
| Bare Trustee (separate company) | Legal title holder | Holds property on title until loan is repaid — acts only on SMSF trustee's instructions |
| Lender | LRBA provider | Lends to the SMSF; recourse is limited to the property in the bare trust only |
| SMSF Members | Beneficiaries of the fund | Personal income often assessed as a serviceability backstop by the lender |
The bare trustee must be a separate entity from your SMSF trustee. Best practice — and what most lenders require — is a special-purpose proprietary limited company set up specifically for this role. Using an individual as bare trustee creates succession risk: if that person dies or loses capacity, transferring the property title becomes a legal problem.
What Changed After the August 2026 LRBA Ban — and Why Commercial Property Is Unaffected?
From 10 August 2026, SMSFs can no longer enter new LRBAs for residential property. This effectively ends SMSF borrowing for houses, units and residential investment property. However, commercial property — premises used wholly and exclusively in a business — is explicitly carved out. The ban applies only to residential; commercial LRBAs continue without change.
For Melbourne business owners, this is significant. If you operate from an office in Coburg, a warehouse in Keilor, or a retail shopfront in Brunswick, your SMSF can still borrow to purchase that premises using an LRBA and bare trust structure. You can then lease the property back from your SMSF at market rent — a strategy that combines concessional super tax rates with cash flow for your fund. This path is unaffected by the residential ban.
Existing residential LRBAs entered before 10 August 2026 are grandfathered. For more on the ban's broader implications, see our guide on whether your SMSF can buy a house in 2026.
What Do SMSF Commercial Property Lenders Actually Require?
This is where most bare trust guides fall short — they cover the legal setup but not what the lender will ask for. Here is what specialist SMSF lenders are requiring for commercial property in September 2026:
- Maximum LVR: 65–70% for commercial property (compared to 70–80% for residential). Some specialist non-bank lenders will stretch to 75% for strong applications.
- Minimum fund balance: $200,000–$300,000 in the SMSF before settlement. Lenders want to see the fund can cover ongoing costs even if the property is vacant for a period.
- Post-settlement liquidity buffer: 5–10% of the asset value must remain in the fund as cash after settlement. This is the requirement lenders have tightened most in 2026.
- Serviceability: Assessed on rental income plus member contributions. Despite the loan being to the SMSF, most lenders also assess the members' personal income as a backstop.
- Loan term: Typically 15–20 years with a 5-year interest-only option on some lenders. No 30-year terms like residential.
- Rates: SMSF commercial rates typically run 1.0–2.0% above standard commercial property rates. Expect a starting point around 7.5–9.0% (variable) depending on LVR and lender in September 2026.
Broker insight: The lender panel for SMSF commercial loans is narrow — major banks are largely absent. IFG works with a deliberately broad panel of bank, non-bank and specialist lenders, which matters when the first lender's credit appetite doesn't fit your deal.
For a deeper look at commercial property finance structures beyond SMSF, including standard commercial loans and non-bank options, see our commercial finance page. And for the full picture on commercial SMSF loans, see our guide on commercial property loans for small business owners.
How Much Does It Cost to Set Up a Bare Trust?
Setup costs are modest relative to the property value, but getting them wrong creates problems that cost far more to fix. Here are the typical costs in September 2026:
| Item | Typical Cost (AUD) | Notes |
|---|---|---|
| Bare trust deed (solicitor-drafted) | $350–$1,500 | Must be LRBA-specific, not a generic trust deed |
| Corporate trustee setup (Pty Ltd) | $800–$1,200 | ASIC registration + professional fees for the special-purpose company |
| ABN and TFN for bare trust | Nil | Free to apply, but required for banking |
| Dedicated bank account | Nil–$10/month | Needed for loan settlement and clean audit trail |
| Ongoing ASIC annual review fee | ~$310/year | For the corporate trustee company |
| Legal and accounting coordination | $1,000–$3,000 | Ensuring SMSF trust deed, bare trust deed and loan docs are all consistent |
All up, expect $2,500–$6,000 for a properly structured bare trust with a corporate trustee. This is a one-off cost (plus the annual ASIC fee) against what is typically a $500,000–$2,000,000+ commercial property purchase. Cutting corners here — using a template deed from the internet, skipping the corporate trustee, or not getting your SMSF solicitor to review the lender's deed — is a false economy.
What Are the Most Expensive Bare Trust Mistakes Melbourne Business Owners Make?
In our experience arranging SMSF commercial finance for Melbourne clients, four mistakes account for the majority of delays, additional costs and compliance failures:
- Signing the purchase contract before the bare trust deed is executed. This is the most common and most costly error. The bare trust must exist before the contract of sale is signed. If you get the sequence wrong, you may trigger double stamp duty — the duty on the original purchase plus duty on a subsequent transfer into the bare trust. In Victoria, this can add tens of thousands to your costs.
- Using the same company as SMSF trustee and bare trustee. The bare trustee must be a separate legal entity. Using your existing SMSF trustee company as the bare trustee invalidates the LRBA structure and can result in the fund being assessed as non-compliant by the ATO.
- Using a generic or outdated bare trust deed. The deed must be specifically drafted for an SMSF LRBA and must reference the correct sections of the SIS Act. Lenders will reject applications where the bare trust deed does not match their compliance requirements.
- Not maintaining the post-settlement liquidity buffer. Even if you qualify at application, drawing down the fund's cash to cover fit-out costs or unexpected vacancies can trigger a lender review and breach your loan covenants.
What Is the Step-by-Step Process to Get a Commercial SMSF Loan Approved?
Here is the sequence we follow at IFG when a Melbourne business owner wants to purchase commercial premises through their SMSF. The order matters — steps done out of sequence create the problems described above.
- SMSF strategy review: Confirm with your accountant and financial adviser that the purchase fits the fund's investment strategy and sole purpose test. Speak with your accountant about any tax implications — we do not provide tax advice.
- Fund balance check: Verify the SMSF has the minimum $200K–$300K balance, plus enough cash for the deposit (30–35% of purchase price) and settlement costs.
- Bare trust setup: Engage your solicitor to incorporate a special-purpose corporate trustee and draft the bare trust deed. The deed must be signed before you inspect or offer on any property.
- Pre-approval: Work with your broker to assess borrowing capacity across specialist SMSF lenders. IFG benchmarks your deal across our panel to find the best LVR, rate and terms.
- Property identification and valuation: Identify the commercial property, obtain a market valuation (required by the lender), and confirm it meets the "business real property" definition under the SIS Act.
- Contract of sale: The bare trust is already in place. The contract is signed in the name of the bare trustee.
- Formal approval and settlement: Lender conducts full credit assessment, issues formal approval, and settlement proceeds. The property title is registered in the bare trustee's name.
- Post-settlement: Lease agreement (if leaseback) is executed at arm's length market rent. Ongoing loan repayments and property expenses are managed through the SMSF.
Timeline: From initial strategy review to settlement, expect 10–16 weeks for a commercial SMSF purchase. The bare trust setup takes 1–2 weeks; the loan approval typically takes 4–8 weeks with specialist lenders.
Frequently Asked Questions
- Can a bare trust hold more than one commercial property?
- No. Under SMSF LRBA rules, each bare trust can hold only one acquirable asset. If your SMSF wants to purchase a second commercial property with borrowed funds, you need a separate bare trust, corporate trustee and loan for each property.
- Can the bare trustee be the same company as the SMSF trustee?
- No. The bare trustee must be a separate legal entity from the SMSF trustee. Most brokers and solicitors recommend a brand-new special-purpose Pty Ltd company that exists solely to act as the bare trustee for that specific property.
- What happens to the bare trust when the loan is fully repaid?
- Once the LRBA is paid off, the legal title can be transferred from the bare trustee directly to the SMSF. The bare trust is then wound up and the corporate trustee can be deregistered with ASIC. Your solicitor should manage this transfer to avoid triggering stamp duty — in most states, this transfer is exempt when the LRBA conditions are met.
- Does the bare trust lodge its own tax return?
- No. The bare trust is "tax transparent" — all income and capital gains flow through to the SMSF, which reports them in its own annual return. The bare trust may need a TFN for banking purposes, but it does not lodge a separate return with the ATO.
Ready to Buy Your Business Premises Through Super?
IFG's directors have arranged SMSF commercial property finance for Melbourne business owners since 2003. We handle the lender search, coordinate with your solicitor and accountant, and make sure the bare trust structure is set up in the right order — the first time.
This article is general information only and does not constitute financial, legal or tax advice. Speak with your accountant about the tax implications of purchasing property through your SMSF. Interest rates, LVR limits and lender policies quoted are indicative as at September 2026 and subject to change. Please speak with a qualified mortgage broker to assess your individual circumstances.