Business Real Property: Buying Your Premises Through Your SMSF

A business owner using their self managed super fund (SMSF) to buy the premises their business operates from, then leasing it back to that business at market rent, is one of the more durable SMSF property strategies around. Unlike a residential investment property held in a fund, it was not touched by the ban on new limited recourse borrowing arrangements (LRBAs) for residential property that began on 10 August 2026. Here is what makes the strategy work, and where it can go wrong.

What counts as business real property

The concept the whole strategy rests on is "business real property," defined in section 66 of the Superannuation Industry (Supervision) Act 1993 (SIS Act) as a freehold or leasehold interest in real property used wholly and exclusively in one or more businesses. The ATO's ruling on the topic, SMSFR 2009/1, makes the test about use, not the type of property: an office, warehouse or retail shop qualifies, and so can other property, provided the use is genuinely business rather than personal.

"Wholly and exclusively" has some give: minor, incidental non-business use will not disqualify a property, but a genuine residential component will. Three situations catch people out. Mixed-use premises, part business and part residence, generally fail unless the residential element is trivial. Vacant land only qualifies if it is actually being used in a business, such as land held as trading stock by a developer, rather than simply sitting idle. And lifestyle or hobby-farm blocks usually fail, because no genuine business is being carried on over the land at all.

Why this survives the August 2026 borrowing changes

From 10 August 2026, the SIS Act blocks SMSFs from entering a new LRBA to buy residential property: the reform added a condition to section 67A requiring that, for real property, the asset be business real property under section 66. That is the same test set out above, and it means the change leaves business premises borrowing untouched. A fund can still borrow to buy the premises a related business operates from, provided the property genuinely meets the business real property definition for as long as the loan runs.

The change followed the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026 and commenced 45 days later. FTC's own SMSF service page reflects the same position: existing loans are protected, cash purchases remain open, and commercial and business real property borrowing continues. If your fund already holds, or is weighing up, business premises, it is worth checking the strategy against the current rules rather than a plan drawn up before the reform.

Rent has to be a real market rent

Buying the property is only half the compliance story. Section 109 of the SIS Act requires every SMSF investment, including a lease to a related party, to be conducted on arm's length terms. For a lease between the fund and the trustee's own business, that means a written lease and rent set at the market rate for comparable premises, backed by an independent appraisal, not a figure that happens to suit the business's cash flow that quarter.

Get it wrong and the rent can be treated as non-arm's length income, taxed at 45% instead of the fund's ordinary concessional rate. It is one of the more common ways this strategy trips up at audit, and it is entirely avoidable with a current valuation and a properly documented lease reviewed periodically.

Why the strategy is worth the compliance effort

Done properly, leasing business real property back to your own operating business is one of the few SMSF strategies with a genuine two-way benefit. The rent is a real, deductible cost to the business, but it lands in the fund taxed at 15% while the fund is accumulating, or 0% if it is paying a pension, rather than building equity that sits inside the business itself.

It also separates the premises from the business's own risk. If the business is sued or fails, the property sits inside the SMSF, a structure with its own trustee and legal identity, rather than as a business asset exposed to trading creditors. Section 71 of the SIS Act reinforces this by excluding a properly documented, arm's length lease of business real property from the fund's in-house asset limit altogether. Get the classification or the rent wrong, though, and both the tax and asset protection benefits unwind quickly, so this is a strategy to set up with advice, not a template.

Finance & Tax Consultants works through the business real property test, the lease documentation and the borrowing structure with business owners considering this strategy for their own SMSF. Get in touch if you are weighing up buying your premises through your fund.

Disclaimer: This article contains general information only and does not constitute financial, legal or tax advice. It has been prepared without regard to your objectives, financial situation or needs. Tax and superannuation laws change frequently, and the information in this article may not reflect the current law or may become inaccurate over time. Before acting on anything in this article, you should consider its appropriateness to your circumstances and seek advice from a registered tax agent or qualified adviser.