Business owners considering using their SMSF to purchase business premises can still do so in many circumstances, despite recent changes to the rules around SMSF borrowing.
While new Limited Recourse Borrowing Arrangements (LRBAs) can no longer be used to acquire residential property, borrowing for qualifying business real property remains available. Understanding where the line is drawn is now more important than ever for trustees considering this strategy.
The recent legislative changes have narrowed when an LRBA can be used, but they have not removed the strategy altogether. For many business owners, purchasing their own business premises through an SMSF may still be an option where the legislative requirements are met.
What is a limited recourse borrowing arrangement (LRBA)?
A limited recourse borrowing arrangement (LRBA) is the mechanism that allows an SMSF to borrow money to acquire certain assets, most commonly property.
Unlike a standard business or personal loan, an LRBA must satisfy strict requirements under the superannuation legislation. The property is generally held in a separate holding trust until the loan is repaid, and if the loan defaults, the lender’s rights are typically limited to that specific asset rather than the SMSF’s broader investments.
Because these arrangements operate within a highly regulated framework, they require careful structuring and ongoing compliance. The recent legislative changes have narrowed the circumstances in which an LRBA can be used to acquire property, but they have not removed the strategy altogether.
What has changed?
The operative change is a single new clause inserted into subsection 67A(2) of the Superannuation Industry (Supervision) Act 1993 (SIS Act). From 10 August 2026, an LRBA can only be used to acquire real property if that property is business real property within the meaning of section 66 of the SIS Act.
Residential property does not meet this definition and is therefore excluded from new borrowing arrangements.
Existing LRBAs established before commencement are grandfathered and are not affected by the change. Refinancing an existing arrangement is also explicitly permitted under the legislation. For those still mid-process on a residential property, the contract date, not settlement, is the operative trigger. Contracts entered into before 10 August 2026 are protected even where settlement occurs after that date.
“Business real property” and “commercial property” are not the same thing
One of the most important distinctions for trustees considering an LRBA is that “business real property” and “commercial property” are not the same thing.
Much of the discussion around these changes has referred to “commercial property” remaining available. That is broadly accurate, but it is not the legal test. The legislation refers specifically to business real property as defined under section 66 of the SIS Act. These two concepts overlap significantly, but they are not identical.
Business real property generally means real property used wholly and exclusively in one or more businesses. The practical implications are worth considering carefully:
- A commercial office leased to a business at market rent will generally qualify.
- An industrial unit, warehouse or factory used in a business will generally qualify.
- Business premises your own company operates from and leases back to your SMSF will generally qualify — and is typically one of the more well-established applications of this structure.
- Vacant commercial land not currently used in a business may not qualify.
- Mixed-use property with a residential component may not qualify in full, or may require careful analysis.
- A commercial-looking property held for future development without active business use may not qualify.
The word “commercial” describes a broad category. Business real property is a narrower legal concept. Whether any specific property satisfies the section 66 definition will depend on the facts of that particular asset and its use — this is not something that can be assumed based on property type alone.
What this means for business owners
For business owners who operate from premises they do not own, the LRBA structure has long offered a well-established long-term planning approach — and that approach remains available for qualifying situations.
In broad terms, the arrangement works as follows. An SMSF borrows funds to acquire the premises from which the business operates. The business then leases those premises from the SMSF at market rent. Over time, the rental income services the loan and accumulates within the superannuation environment. When the loan is repaid, the fund holds the asset outright.
Depending on a member’s circumstances, several potential benefits may be relevant when assessing this structure.
During the accumulation phase, income and capital gains within superannuation are generally taxed at concessional rates, currently 15% on earnings, with a reduced effective rate on capital gains for assets held longer than twelve months. In retirement phase, income and capital gains supporting pension payments may be tax-free, subject to relevant caps and rules. The superannuation environment may also provide a level of asset protection that differs from property held personally.
These features may be relevant for some business owners, but whether they are appropriate in any particular situation depends on individual circumstances, fund structure, retirement objectives and a range of other factors. This is not a structure that suits every situation, and the considerations below are equally important to weigh.
Why careful structuring matters
Even where a property qualifies as business real property, establishing an LRBA involves more than obtaining finance. The legislation imposes specific structural, legal and compliance requirements, so it is important to consider the arrangements as a whole before proceeding.
Key considerations include:
- Whether the property satisfies the definition of business real property
- The ownership structure, including the holding trust and bare trustee arrangements
- Whether the lending terms comply with the superannuation rules
- How the purchase fits within the fund’s investment strategy
- The ongoing compliance obligations throughout the life of the arrangement
- The broader tax, cash flow and succession planning implications for the members
Getting these details right before entering an arrangement is generally much simpler than trying to correct problems later. Because these arrangements operate within a detailed legislative framework, errors can result in compliance issues, additional costs or unintended tax consequences. Careful planning before contracts are signed can help avoid those issues.
The broader planning picture
These changes are also occurring alongside broader superannuation reforms, including Division 296.
For members with superannuation balances above $3 million, Division 296 introduces an additional 15% tax on earnings attributable to balances above the threshold. For those considering an LRBA, understanding how these rules interact may influence whether the proposed structure remains appropriate. You can read more about Division 296 and how it operates in our detailed guide.
Business owners considering this structure may also wish to consider how the superannuation asset fits within their broader succession and estate planning objectives. Commercial property held inside an SMSF is subject to the superannuation rules governing death benefits, which differ from the rules applying to personally held assets or assets held through a family trust.
Understanding how these pieces connect through tax, superannuation, business structure and long-term planning is where coordinated advice across disciplines can add significant value.
