Why More Investors are Using SMSFs to Buy Commercial Property

For many Australians, building long-term wealth is increasingly about taking control. One way investors are doing this is by using a Self-Managed Super Fund (SMSF) to buy commercial property. This strategy combines tax advantages, asset security, and retirement planning in one well-structured investment vehicle. Here’s why more investors — particularly those with an eye for strategic growth — are turning to their SMSFs to secure commercial property.

The Appeal of Commercial Property in an SMSF

Commercial property offers predictable income streams, higher rental yields, and long lease terms — all attractive features for long-term investors. Unlike residential property, where tenants may change every 6–12 months, commercial leases can stretch for 3–10 years, offering a more predictable income stream and greater stability to your SMSF portfolio.

Additionally, commercial property investment within an SMSF provides the opportunity to:

• Diversify your SMSF assets across multiple asset classes
• Capture long-term capital gains
• Generate retirement benefits from rental income

Tax Advantages and Asset Protection

One of the most compelling reasons to use an SMSF for commercial property is the tax benefits. SMSFs enjoy concessional tax rates — 15% on rental income and 0% in the pension phase, assuming the fund is compliant. There are also potential Capital Gains Tax (CGT) concessions if the property is held for over 12 months.

When your SMSF enters the pension phase, rental income and any future capital gains may become entirely tax free, further enhancing your retirement savings. Moreover, owning property in your SMSF can offer asset protection. Because assets are held in a separate legal entity, they are generally protected from personal or business creditors.

Buy Your Business Premises Using Super

If you're a business owner, buying your own commercial premises using your SMSF can be a game-changer. The SMSF can purchase the business property and lease it back to your trading entity at market value under a commercial lease. This creates a predictable income stream for the SMSF while freeing up capital for your business.

It’s a legitimate and popular strategy — provided it passes the sole purpose test, and the lease is conducted on arm’s length terms to satisfy Australian Taxation Office (ATO) compliance.

Gearing with a Limited Recourse Borrowing Arrangement (LRBA)

Many investors worry they won't have enough in super to buy commercial property outright. That’s where an LRBA (Limited Recourse Borrowing Arrangement) comes in. This structure allows your SMSF to borrow funds to acquire property, with the lender’s rights limited to the asset purchased.

Key benefits of using an LRBA include:

• Leveraging existing SMSF savings to acquire higher-value property
• Spreading contributions across a larger investment property
• Boosting long-term property’s growth potential

However, LRBAs must be set up carefully, with careful planning, ongoing compliance, and legal structuring to remain within superannuation law.

Compliance and Responsibilities

With great opportunity comes numerous responsibilities. An SMSF accountant can help you ensure you meet the compliance requirements and that your SMSF remains compliant.

As an SMSF trustee, you are responsible for:

• Ensuring ongoing compliance with superannuation laws
• Making sound investment decisions based on your fund’s investment strategy
• Managing ongoing costs and loan repayments
• Obtaining regular property valuations and maintaining records

Risks to Consider

Like any investment, there are risks:

• Short-term market fluctuations can affect market value
• Stamp duty, legal fees, and related party lease arrangements must be handled properly
• Potential liquidity issues, especially if your fund's cash flow depends heavily on rental income

There’s also the risk of failing the sole purpose test, particularly when dealing with your own business or related party tenants. Each decision needs careful consideration to remain compliant and achieve the fund’s retirement goals.

Why This Strategy Appeals to Opportunistic Investors

For the opportunistic investor, the combination of leverage, tax effectiveness, and long-term capital appreciation can make commercial property a compelling opportunity within an SMSF structure.

Many are attracted to:

• Control over their self managed super fund
• Exposure to commercial real estate over volatile residential property markets
• Enhanced retirement savings through diversified property assets
• Ability to house their own business while generating SMSF income

As a result, we’re seeing more and more SMSF investors actively pursue commercial property investment as a deliberate part of their wealth-building strategy.

Final Thoughts

Using your SMSF to buy commercial property isn’t a decision to take lightly — but for informed investors, it can be an incredibly powerful tool. With the right structure, strategic vision, and professional guidance, it can deliver consistent income, long-term growth, and meaningful benefits well into retirement.

Interested in exploring whether this strategy is right for you? Speak with our lending and SMSF structuring specialists to assess your position and uncover what’s possible.