SMSF Commercial Property Leaseback: The Melbourne Business Owner’s 2026 Guide

On 10 August 2026, the government closed the door on new SMSF borrowing for residential property. Limited recourse borrowing arrangements (LRBAs) can no longer be used to acquire residential real estate inside a self-managed super fund. It is one of the most significant changes to SMSF investing in years — and it has a notable carve-out that many Melbourne business owners have not yet registered: commercial property leaseback arrangements are entirely unaffected. If your business operates from commercial premises, your SMSF can still borrow to buy those premises and lease them back to your business — and in many cases, it is one of the most compelling wealth-building structures available to Australian SME owners.

This guide covers how the SMSF commercial property leaseback works from a lending and structure perspective — the LRBA mechanics, what the ATO requires for the lease to hold up, and where the strategy can go wrong. It is not financial or superannuation advice. Before making any decision about your SMSF, always work with a qualified SMSF financial adviser and accountant. IFG’s role is the credit side: structuring the LRBA, finding the right lender from our deliberately broad panel of bank, non-bank and specialist lenders, and making sure the loan itself is built correctly from day one.

What is an SMSF commercial property leaseback — and why 2026 is the moment to understand it

An SMSF commercial property leaseback is exactly what the name suggests. Your self-managed super fund buys the commercial property your business operates from. Your business then leases the property back from the SMSF, paying rent on a formal, arm’s length basis. The rent flows into the fund as income, accumulating in a tax-advantaged structure. When you retire, that rent — and any capital gain when the property is eventually sold — may be tax-free.

It is one of very few transactions where superannuation law explicitly permits an SMSF to deal with a related party. For residential property, SMSF law prohibits related-party purchases and leases entirely. For business real property (commercial premises used wholly and exclusively in carrying on a business), the rules are different: the SMSF can buy the property from you personally, from your company, or from a related trust — and can lease it back to your business at market rent. This related-party exemption has existed in superannuation law for many years. What has changed in August 2026 is that new LRBA borrowing for residential property is now banned, making the commercial leaseback the standout remaining SMSF borrowing strategy for business owners who want to use leverage inside their fund.

Does your property qualify? The “business real property” test explained

Not every commercial property automatically qualifies. Superannuation law uses the term business real property (BRP) — a specific legal concept with requirements your property must meet before the leaseback structure is permissible.

To qualify as business real property, the land and buildings must be used wholly and exclusively in one or more businesses. The key elements in practice:

• Wholly and exclusively used in a business. If the premises are partly residential — a shop with a flat above it, for instance — the residential component may disqualify the property or require the arrangement to be structured differently. Mixed-use properties require careful analysis by your SMSF accountant.
• The business must be genuinely operating. The ATO does not accept arrangements where a business exists solely to create a leaseback structure. The commercial activity must be genuine and ongoing.
• Land associated with the business qualifies. Rural properties used in primary production businesses — farming, viticulture — can qualify as BRP even where a residential dwelling exists, provided the land as a whole is used in the business.
• The property can be acquired from a related party. Unlike residential property, BRP can be purchased by the SMSF from a related party (including the member or their associate) at market value. This means a business owner who already owns their commercial premises personally can transfer it into their SMSF — again, with proper valuation and legal advice.

If you are uncertain whether your property meets the BRP test, your SMSF accountant is the right starting point. The consequences of getting this wrong — holding a non-complying asset inside your fund — are severe.

How the LRBA works — and what the numbers typically look like

When an SMSF does not have sufficient cash to buy the property outright, it can borrow through a limited recourse borrowing arrangement. The LRBA structure is more complex than a standard investment property loan, and lenders who offer SMSF commercial property loans are a subset of the broader SMSF lending market — not all banks participate, and terms vary significantly between lenders.

The core mechanics of an SMSF LRBA for commercial property:

• The loan is taken in the name of a bare trust (sometimes called a holding trust or custodian trust). The bare trustee holds legal title to the property while the SMSF holds the beneficial interest. Once the loan is fully repaid, legal title transfers to the SMSF trustee.
• The lender’s recourse is limited to the property itself. On default, the lender can take the security property but cannot pursue the fund’s other assets. This is the “limited recourse” in LRBA.
• The SMSF cannot improve the property during the loan term in a way that changes the asset’s character. Maintenance is permitted; significant capital improvements require the loan to be repaid first or a new LRBA to be established.

Typical LRBA parameters for SMSF commercial property in 2026:

Feature	LRBA (Borrowed Funds)	Cash Purchase (No Borrowing)
Maximum LVR	60%–70% of property value (lender-dependent)	N/A — fund pays full purchase price
Fund balance required	Typically $400,000–$500,000+ (deposit + costs + liquidity buffer)	Full purchase price plus costs, typically $600,000+
Interest rate (indicative)	~6.6%–7.5% p.a. (commercial SMSF rates, August 2026)	No loan cost; fund’s cash is fully deployed
Leverage benefit	Amplifies returns if property appreciates; amplifies losses if it falls	No leverage; fund retains liquidity
Structural complexity	Bare trust required; legal and setup costs $3,000–$8,000+	Simpler; standard conveyancing applies

The LRBA is not always the right choice. A fund with sufficient cash may prefer to purchase without borrowing, avoiding the complexity and ongoing loan cost. However, for business owners who want to preserve the fund’s liquidity or use leverage to maximise the property’s contribution to their retirement balance, the LRBA remains a powerful tool — and one that August 2026 has left intact for commercial property.

What the ATO requires: arm’s length rules your lease must satisfy

The lease between your SMSF and your business is a related-party transaction, and the ATO scrutinises related-party leases carefully. For the arrangement to be compliant — and for the rent to be taxed at the fund’s concessional rate rather than the punishing NALI rate — the lease must be conducted on genuine arm’s length terms. In practice, this means meeting all of the following requirements:

• Market rent. Rent must reflect the true market value of the premises — what an unrelated tenant would pay for the same space. This should be supported by an independent valuation or written appraisal from a qualified property manager or commercial real estate agent, obtained before the lease commences and reviewed at least annually.
• Written lease agreement. A formal, signed lease is non-negotiable. Verbal agreements or handshake arrangements are not acceptable. The lease must be on commercial terms, with a defined term, rent review clauses (typically annual, indexed to CPI or market), and standard commercial conditions.
• Rent paid on time, in full, to the fund’s bank account. Late or irregular payments are a red flag for auditors. The business must pay rent consistently into the SMSF’s designated bank account, not commingled with other payments.
• Proper record keeping. Invoices, bank statements showing rent received, rent review notices and valuation reports must all be retained. SMSF auditors will request this documentation at the annual audit.
• No sweetheart terms for the related party. Lease conditions — including rent-free periods, fit-out contributions, and make-good obligations — must reflect what the fund would accept from an arm’s length tenant. Disproportionately generous terms to the related party create NALI risk.

These requirements apply continuously, not just at the outset. If your business’s financial position deteriorates and it falls behind on rent, the fund must act as a commercial landlord would — issuing notices, pursuing arrears — not simply waiving the obligation. The superannuation law requires trustees to act in the best interests of fund members, which includes collecting rent owed.

NALI: the 45% tax penalty that catches Melbourne business owners out

Non-Arm’s Length Income (NALI) is the single biggest compliance risk in an SMSF commercial property leaseback. If the ATO determines that your fund’s income from the property does not reflect an arm’s length dealing, that income is reclassified as NALI and taxed at the top marginal rate of 45% — not the 15% concessional rate applicable to complying funds, and not the 0% rate available in pension phase. In some circumstances, NALI can also apply to the capital gain when the property is eventually sold.

The NALI provisions were significantly strengthened by legislation that took effect from 1 July 2022 and further clarified by ATO guidance issued since then. The ATO has been active in reviewing SMSF-related-party arrangements, and SMSF auditors are required to report suspected NALI to the regulator. This is not a theoretical risk — it is one that IFG’s SMSF lending clients are consistently briefed on before any leaseback structure is put in place.

Important: the NALI provisions, fund compliance and superannuation tax obligations are the domain of your SMSF accountant and financial adviser, not your mortgage broker. IFG can structure the credit facility correctly; we cannot advise on your fund’s tax position. Please ensure you have engaged a qualified SMSF specialist before proceeding.

When does an SMSF commercial leaseback make sense — and when should you think twice?

The SMSF commercial property leaseback is a compelling strategy for the right business owner — but it is not universally appropriate. From a lending and structuring perspective, the arrangements that work best share several characteristics:

• The business has genuine longevity in its current premises. Committing your super fund to a commercial property makes most sense where your business is likely to occupy the premises for a significant period. If the business is growing rapidly and may need to move or expand within a few years, the strategy is more complex to unwind.
• The fund has sufficient liquidity after settlement. An SMSF that deploys all of its cash as a deposit — leaving nothing for loan repayments, rates, insurance and maintenance — is over-committed. Lenders assess this carefully, and fund trustees must also meet their ongoing obligations independently of the business’s rental payments.
• The business is financially stable and can meet rental obligations. The SMSF cannot subsidise the business by accepting below-market rent or waiving arrears. If the business is under financial stress, a leaseback structure creates compliance risk for the fund and its trustees.
• The member is at least 10–15 years from retirement. The longer the investment horizon, the more time the tax advantages compound. For members approaching retirement who already have a large fund balance, the superannuation contribution limits may constrain how much value the strategy can deliver in the remaining years.

For business owners who are considering acquiring new commercial premises — or who currently own their business property personally and are looking at restructuring — the leaseback is worth a thorough conversation with your SMSF accountant, financial adviser and a commercial lending specialist who understands the SMSF side of the transaction. The credit structure, the property valuation, the bare trust documentation and the lease must all be correctly established from day one. Errors are difficult and expensive to fix after the fact.

IFG has arranged SMSF lending for Melbourne business owners across a range of commercial property types — from offices and warehouses in Melbourne’s north and west to professional consulting spaces and retail premises. We work with a deliberately broad panel of bank, non-bank and specialist lenders, which means we can match the specific SMSF LRBA structure to the lender whose credit policy and pricing best suits your fund’s circumstances. We also have working relationships with SMSF accountants and legal firms who handle the trust documentation, so we can facilitate the full team coordination — not just the loan.

General information only — not financial, superannuation, tax or legal advice. Superannuation and SMSF decisions should be made in consultation with a licensed financial adviser and registered SMSF auditor. Brian Hermosilla CR 485802 · Frank Marin CR 486546 · BLSSA Pty Ltd ACL 391237. IFG provides credit assistance only and is not licensed to provide financial product advice.

Frequently asked questions

Can my SMSF buy commercial property and lease it back to my business?

Yes — this is one of the few related-party transactions explicitly permitted under superannuation law, provided the property qualifies as business real property (used wholly and exclusively in a business) and the lease is at genuine arm’s length market rent. The August 2026 LRBA ban applies only to residential property — new LRBAs for commercial business real property remain fully available.

What is NALI and how does it apply to an SMSF leaseback?

NALI (Non-Arm’s Length Income) is rental income the ATO classifies as having been earned on non-commercial terms. If your fund charges below-market rent to your business, receives rent late or intermittently, or operates without a formal lease, the ATO may reclassify the income as NALI — taxed at 45% instead of the fund’s 15% concessional rate (or 0% in pension phase). NALI can in some circumstances also apply to capital gains on the property when sold. An annual independent rent appraisal and proper lease documentation are essential safeguards.

How much does my SMSF need before borrowing to buy commercial property?

Most lenders look for a fund balance of at least $400,000–$500,000 before approving an SMSF LRBA for commercial property. LVRs are typically 60%–70%, meaning the fund must contribute 30%–40% of the purchase price as a deposit, plus legal fees, stamp duty and bare trust setup costs. The fund also needs sufficient liquidity after settlement to service the loan, pay outgoings and meet its obligations independently of the rental income. Your SMSF accountant should model the fund’s cash flow position before you commit.

What happens to the property and the rental income when I retire?

Once an SMSF member moves into pension phase and their account is paying an account-based pension, the fund’s investment income — including rent from the commercial property — is generally tax-free (subject to the transfer balance cap and applicable legislation at the time). Capital gains on assets held in pension phase may also be CGT-exempt. The arm’s length requirements for the lease do not change in pension phase — market rent and proper documentation remain mandatory. Speak with your SMSF accountant and financial adviser about your retirement planning circumstances.