Buying commercial property with a self managed super fund (SMSF) can be a strong long-term strategy, but it also comes with significant responsibilities.
SMSFs are tightly regulated, and trustees are personally accountable for meeting compliance standards set by the Australian Taxation Office (ATO) and overseen by regulators including ASIC and APRA.
The Sole Purpose Test
The sole purpose test is the cornerstone of SMSF compliance, requiring that investments are made only to provide retirement benefits to members.
For commercial property, this generally means:
* The property cannot be used for personal benefit.
* Transactions such as leases, valuations, and repairs must be at arm’s length.
* The investment must align with the fund’s documented investment strategy.
Failing the sole purpose test can lead to severe penalties, including loss of the fund’s complying status.
Leasing to Your Own Business
SMSFs are allowed to purchase business real property and lease it back to a related business, provided strict ATO conditions are met. Leases must be at market rates, properly documented, and supported by independent valuations.
The ATO and ASIC have cautioned that poorly structured related-party leases are a common compliance issue. Trustees must treat the SMSF as an independent landlord.
Borrowing and LRBAs
If an SMSF does not have enough cash to purchase outright, it may use a limited recourse borrowing arrangement (LRBA). These loans limit the lender’s rights to the property itself, but come with strict requirements:
* Only one asset per LRBA structure.
* Loan terms must meet ATO safe harbour guidelines.
* All arrangements must be formally documented.
APRA’s data shows LRBAs are increasingly popular, but they carry higher risk, especially if the property becomes the fund’s dominant asset.
Diversification, Liquidity and Valuations
Trustees must prepare and regularly review a written investment strategy covering diversification, liquidity, and risk. Commercial property can challenge liquidity — if the asset is vacant, the SMSF may struggle to meet obligations.
The ATO requires market valuations annually, with independent assessments recommended when related-party transactions occur or when the property makes up a significant proportion of the SMSF.
Record-keeping is critical. Trustees must maintain lease agreements, rent records, and valuations for at least five years.
Risks and Penalties
ATO has powers to:
* Impose penalties of up to $18,780 per trustee per breach (2025)
* Tax the fund at the highest marginal rate if deemed non-complying
* Disqualify trustees from managing SMSFs ASIC has also issued warnings about property promoters targeting SMSF trustees with unrealistic claims.
Professional guidance is essential to avoid compliance traps.
Market Outlook
Industry analysts, including Deloitte Access Economics, expect demand for industrial, logistics, and medical property to remain strong, reflecting broader demographic and economic trends. But with heightened regulatory scrutiny and rising interest rates, SMSFs must be especially careful to structure investments correctly. Compliance is not optional — it is central to ensuring long-term benefits.
Buying commercial property through an SMSF can offer significant opportunities, but it is not without complexity. Trustees must navigate strict rules around purpose, borrowing, leasing, and valuations, and penalties for missteps are severe.
Disclaimer: This article is provided as general information only. It is not financial or legal advice. If you are considering SMSF property investment, you should always consult a qualified accountant, financial adviser, and buyers agent with SMSF expertise to confirm the right strategy for your circumstances.
