SMSF Loans & Retail Property: What Changed in August 2026

A retail property purchased through your SMSF can still be financed with a Limited Recourse Borrowing Arrangement, but only if it qualifies as business real property when you enter the loan and for the entire life of that loan.

The rule changed on 10 August 2026. If you're considering a shop, warehouse, or office space in or around Marsden Park, the distinction between what counts as business real property and what doesn't now determines whether you can borrow at all. For funds that entered an arrangement before that date, nothing changed. For new arrangements, the property must be used wholly and exclusively in one or more businesses.

Business Real Property: The Current Definition

Business real property is land and buildings used wholly and exclusively in one or more businesses. A retail shop leased to a tenant running a cafe qualifies. A residential unit rented to a family does not, even if described as an investment property. The distinction sits with how the property is used, not how it's zoned or titled.

Consider a self-employed tradesperson in Marsden Park who owns a small industrial unit through their SMSF. The unit is leased to a logistics business. The lease is current, the tenant operates a commercial enterprise, and the property generates rental income taxed at the fund's concessional rate. That arrangement can be financed under an LRBA entered into after 10 August 2026. If the same member tried to finance a townhouse in Elara Boulevard and lease it to a family, the loan would breach the borrowing prohibition because residential tenancies don't meet the business real property test.

What Happens If the Property Stops Being Business Real Property

If a property financed under an LRBA ceases to meet the definition during the life of the loan, the fund fails to maintain the arrangement and compliance action may follow. A vacant period between tenants doesn't automatically disqualify the property, provided the trustee is actively seeking a new commercial tenant. Abandoning plans to lease the property commercially does.

In our experience, the risk sits with properties that have dual potential uses. A small retail premises in a mixed-use development near Marsden Park Town Centre might be leased to a business now, but if the trustee later decides to convert it or lease it for non-commercial purposes, the LRBA becomes invalid. That's not a theoretical concern. The Australian Taxation Office states clearly that the property must meet the definition when the loan is entered into and throughout the life of the loan. If it doesn't, the fund has breached the law against borrowing.

LVR and Deposit Requirements for SMSF Commercial Loans

Most lenders offering SMSF commercial loans cap the loan-to-value ratio at 70 per cent, meaning you need at least a 30 per cent deposit plus costs. Some lenders go to 80 per cent LVR in specific circumstances, but that's not common for retail or commercial property held in an SMSF structure. The deposit must come from existing super balances or contributions that comply with the concessional and non-concessional caps.

For the 2026-27 financial year, the concessional contributions cap is $32,500 and the non-concessional cap is $130,000. If your total super balance at 30 June of the previous year was below $1.84 million, you can access the bring-forward arrangement and contribute up to $390,000 over three years. If your balance was above $2.1 million, the non-concessional cap is nil. Those thresholds matter when you're trying to build a deposit inside the fund without triggering excess contributions tax.

Interest Rates and Loan Structure

SMSF commercial loan interest rates generally sit above standard residential variable rates, reflecting the additional risk lenders take on a limited recourse structure. Variable rates are more common than fixed rates in this space, though some lenders do offer fixed terms. Where a related party provides the loan, the interest rate must be no more than an arm's length rate, and the ATO's Practical Compliance Guideline 2016/5 sets out what that means in detail.

The loan must be held in a bare trust structure, with the SMSF acquiring a beneficial interest in the property and the right to legal ownership after the loan is repaid. The lender's recourse is limited to the asset in the trust. That structure has been mandatory since 2007 for any LRBA, and it remains unchanged under the new rules. Related parties can give personal guarantees to support the loan, but their recourse must still be limited to the asset under the arrangement, not other fund assets.

Tax on Rental Income and Capital Gains

Rental income from a commercial property held in an SMSF is taxed at 15 per cent during the accumulation phase. If the property supports a retirement phase income stream and meets the segregated asset requirements, that income may be exempt under the exempt current pension income rules. Capital gains tax applies at 15 per cent in accumulation phase, or 10 per cent after applying the one-third discount for assets held at least 12 months. In pension phase, gains on segregated current pension assets are disregarded entirely.

From 1 July 2026, Division 296 tax applies to members with a total super balance above $3 million. The tax is 15 per cent on the proportion of earnings that relates to the balance above that threshold, and an additional 10 per cent on the portion above $10 million. Importantly, amounts borrowed under an LRBA are never included in a member's total super balance for Division 296 purposes. That makes leveraged property inside super a more efficient structure for members approaching or above the threshold, compared to holding the same property in an unleveraged account.

Refinancing an Existing SMSF Loan

An LRBA entered into before 10 August 2026 can be maintained or refinanced after that date, even if the property is residential. The new rule does not apply retrospectively. If you hold a residential investment property in your SMSF under a loan entered into in 2024, you can refinance that loan now without losing the ability to borrow, provided the refinanced amount does not exceed the existing balance and the asset remains the same.

Refinancing is considered entering a new loan contract for the same asset, with the same or a new lender. A significant change to the terms or conditions of the loan ends the arrangement and starts a new one. Drawdowns for capital improvements are not permitted under the LRBA rules, and each drawdown under a loan facility may result in a separate borrowing arrangement. The distinction between a variation and a refinance depends on the nature and extent of the change and the intention of the parties.

Compare SMSF Lenders Before You Commit

Not all lenders offer SMSF commercial loans, and those that do have different policies on LVR, interest rates, loan terms, and what types of commercial property they'll finance. Some lenders won't touch retail premises in regional or growth areas like Marsden Park. Others specialise in exactly that. The application process is longer than a standard residential loan, and the documentation requirements include trust deeds, fund financials, and evidence that the property meets the sole purpose test.

Working with a mortgage broker who understands the LRBA structure and knows which lenders are active in the SMSF space saves time and often produces a better outcome. Lenders price SMSF loans individually, and the rate you're offered depends on the property type, the fund's financial position, and the LVR. A broker can submit your scenario to multiple lenders and compare the offers on rate, fees, and loan features without you needing to approach each lender separately.

Sole Purpose Test and In-House Asset Rules

Any property held in an SMSF must meet the sole purpose test, meaning it exists solely to provide retirement benefits to members. You can't lease a commercial property held in your SMSF to yourself or use it for personal purposes. If the property is leased to a related party of the fund, the fund's interest in the holding trust is an in-house asset unless the leased asset would not be an in-house asset if the SMSF owned it directly. Business real property is an exception to the in-house asset rule, which is another reason the definition matters.

A member who runs a business and wants to purchase the premises through their SMSF can do so, provided the lease is at market rate and the arrangement is arm's length in all respects. The property must still be business real property and must be used wholly and exclusively for business purposes. Where a property on a rural or semi-rural block contains a dwelling for private or domestic purposes, it can still meet the wholly and exclusively requirement if the dwelling sits on no more than 2 hectares and the main use of the whole property is not domestic or private.

Call one of our team or book an appointment at a time that works for you. We work with SMSF trustees across Marsden Park and the broader Hills District, and we'll walk you through the lender comparison, the trust structure, and the application process from start to finish.

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