What does it really cost to buy Commercial Property through an SMSF?
- Joean Soliman
- 5 hours ago
- 7 min read
Let me start with a question.
If your SMSF wanted to buy a commercial property next month — an office, a warehouse, a medical suite — do you know what it would actually cost the fund to get to settlement?
Most people answer with the deposit figure. Most people are short by tens of thousands.
Here's what's behind that, and why it matters right now.
WHAT CHANGED ON 10 AUGUST 2026
From 10 August, an SMSF can no longer borrow to buy residential property. Borrowing to acquire commercial property remains available, provided the property meets the business real property test in the superannuation law.
Two things worth being clear about:
The restriction applies to borrowing, not ownership. A fund can still hold residential property bought outright from fund cash. What's gone is the ability to borrow under a new arrangement to acquire it.
Existing arrangements are untouched. If you already have an LRBA in place it runs its full term under the old rules, and you can refinance it. If you exchanged contracts before 10 August, you're protected even if settlement came later.
HOW THE STRUCTURE WORKS
An SMSF can't take out an ordinary mortgage — superannuation law generally prohibits a fund granting a charge over its assets.
What it can do is borrow under a limited recourse borrowing arrangement:
The fund borrows, but the property is held by a separate holding trustee under a bare trust
The fund holds a beneficial interest and takes legal title once the loan is repaid
If the fund defaults, the lender's recourse is limited to that one asset — your shares, your cash, your other holdings are quarantined
That protection is the point of the structure. It's also why lenders price these loans higher and want larger deposits.
The numbers as they stand:
Deposit: 30% minimum for most commercial, 35–40% for specialist assets in some cases lenders may except 20% but this is on a case by case basis.
Interest rates: 6.8–8.5% p.a.
Fund balance: lenders often quote $200,000–$250,000 minimum, but $500,000 is realistic and $750,000 is comfortable
Commercial yields: typically 5.5–7.5%, against 3–4.5% residential
Question: on a $1 million purchase, what's the actual cash the fund needs at settlement?
Closer to $362,500 than the $300,000 deposit most people budget for — and that's before the liquidity buffer the lender will want retained inside the fund.
THE GST COMPONENT MOST PEOPLE MISS
This one catches funds out regularly, and it's a cash flow problem rather than a tax problem.
Residential rent is input taxed — no GST charged, no credits claimable.
Commercial is different. The sale of commercial premises is generally a taxable supply, and rent from commercial premises is generally subject to GST.
What that means in practice:
Commercial purchase prices are often quoted plus GST. On a $1 million property that's another $100,000 payable at settlement
Where the fund is registered, that GST can generally be claimed back as an input tax credit — but not immediately. It comes through the fund's next BAS
Lenders will not usually finance the GST component, not a blanket statement again it would be up to the lender based on their individual analysis of the loan and the terms
Where a property sells with a lease already in place, the transaction may qualify as a GST-free supply of a going concern — which removes the issue entirely, if the conditions are met and documented before settlement
Question: could your fund cover a $100,000 GST bill at settlement and wait weeks for the credit?
If the answer is no, that needs solving before you sign anything.
OFF-THE-PLAN AND NEWLY BUILT COMMERCIAL
A question we get constantly: can a fund borrow to buy commercial property that's off-the-plan, or newly completed and not yet tenanted?
In practice, lenders are currently financing these acquisitions under limited recourse borrowing arrangements, and a signed tenant at contract date is not universally treated as a precondition.
What you should expect is a firmer liquidity requirement. Because the property produces no income until a tenant is secured, lenders generally want a retained buffer inside the fund — commonly around 5% of the fund balance or loan amount, sometimes more — and the fund has to meet repayments and outgoings from its own resources throughout the leasing period.
Policy differs between institutions, so confirm the specific lender's position early rather than assuming it.
★THE BONUS SECTION — FOR ANY BUSINESS OWNER
Worth reading even if commercial property investment isn't on your radar.
Your SMSF can buy your business premises and lease them back to your own company.
Not a loophole. An express exception in the legislation, used by Australian business owners for decades.
Why it works: normally an SMSF is capped at 5% of fund assets in anything involving a related party. But business real property leased to a related party is exempt from that cap — so your fund can hold 100% of its assets in the premises your business occupies.
What it changes:
Your business can't be evicted, and can't lose its location to a landlord's redevelopment plans
Rent that was leaving permanently now builds equity inside your super
That rental income is taxed at 15% in accumulation phase, not your marginal rate
Complying funds get a one-third CGT discount on assets held over twelve months — and where the asset supports a retirement-phase pension, capital gains may be exempt entirely
And here's the part that costs people money. From the guide:
"Charging less than market rent provides a current-day benefit to the related party. That breaches the sole purpose test, and the income may be treated as non-arm's length income. Where rent is below market, the ATO may treat the entire rental income stream as NALI — not merely the shortfall. The whole amount is then taxed at 45% rather than 15%."
Read that twice. Not the shortfall. The entire income stream.
The guide sets out the five mistakes that trigger it — below-market rent, above-market rent, no formal lease, retrospective valuations, and private use — with the documentation you need to keep and a worked example of a compliant arrangement.
TEN QUESTIONS WE GET ASKED CONSTANTLY
If you can answer all ten confidently, you're ahead of most trustees. If you can't, the answers are in the guide.
Can an SMSF buy commercial property using a mortgage? (No — but not for the reason most people assume.)
Does your fund need to register for GST to buy commercial property?
Who determines market rent for a related party lease, and when must it be done?
What happens if your related party tenant pays rent late — once, or repeatedly?
Can your fund buy the property from you, or from your own business?
Are improvements allowed while the loan is still in place?
What happens to the property when you retire — and how do you meet minimum pension payments if it's the fund's main asset?
What are the actual penalties for failing the business real property test?
Can you borrow for an off-the-plan or newly completed commercial property?
Can two unrelated SMSFs buy a property together?
WHERE THE OPPORTUNITY CURRENTLY SITS
The guide includes a sector-by-sector read on the Australian commercial market:
Industrial is the clear leader. National vacancy around 3.2%. Perth is the tightest market in the country at 1.7–2.7%, projected to fall toward 0.7% by 2028. Asking rents moved from roughly $118/sqm to $126/sqm in six months.
Retail was the surprise performer, delivering total returns near 9.2% in 2025 — the strongest of any commercial sector.
Office is two markets, not one. Gold Coast sits near 7.3% vacancy and Brisbane CBD near 10.2%. Melbourne CBD sits between 18.9% and 20.5%. The national average tells you almost nothing.
Healthcare is quietly attractive — long leases, covenant-strong tenants, demographic tailwinds.
It also covers where not to buy, and why secondary stock in a strong sector can be worse than prime stock in a weak one.
WHAT'S INSIDE — 65 PAGES, FREE
Part One — The New Landscape
What changed on 10 August · What the restriction covers · What's grandfathered · Business real property · Off-the-plan and newly built premises
Part Two — How the Numbers Work
How SMSF commercial loans work · Maximum LVR by property type · The full cash requirement, worked through · The liquidity buffer on new or untenanted property · GST
Part Three — Understanding the Risk
The seven risks — vacancy, tenant concentration, interest rate, property-specific, liquidity, compliance and refinancing
Part Four — Where the Opportunity Is
Industrial & warehouse · Healthcare, childcare and retail · Office · Where to be cautious · Strategic recommendations
Part Five — Bonus Section for Business Owners
Own your business premises inside your super · The in-house asset exception · The five mistakes that trigger a 45% tax rate · Documentation requirements · A worked example
Part Six — Questions & Next Steps
Frequently asked questions · Is this strategy right for you? · Your next steps
ONE LAST THING
The business real property test isn't a hurdle you clear once at settlement. The property has to satisfy it throughout the life of the arrangement.
A tenant vacating, a change of use, a period sitting empty, or a private use component creeping in — each can put the classification at risk years after you bought.
The guide includes a simple annual compliance step that protects against exactly that. It costs almost nothing and it's the single best insurance against a problem surfacing late.
Australia's underlying fundamentals remain compelling. The population increased by approximately 651,000 people (2.5%) in 2023–24—one of the fastest growth rates in the developed world—while new housing construction continued to lag demand. Vacancy rates across many investment-grade markets remained below 1%, placing upward pressure on rents and supporting long-term capital growth.
No cost, no obligation. If you'd like to talk through whether any of this fits your fund, just reply — we're happy to have that conversation and to point you to the right specialists.
This email/content is general information only and does not constitute financial, taxation, superannuation, accounting, legal or credit advice. Calla Property is not a firm of accountants, tax agents or lawyers. This email does not take into account your objectives, financial situation or needs. GST treatment depends on the specific facts of a transaction. Lender policy varies between institutions and changes without notice — nothing here is an offer of finance. Establishing, operating or borrowing within an SMSF carries significant legal and compliance consequences, and trustees carry personal legal responsibility for the fund. Market data cited is historical and is not a reliable indicator of future performance. Please obtain independent professional advice from appropriately licensed advisers before acting. Full disclaimer included in the guide.
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