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Buying Property Through Your SMSF: What You Need to Know

Merit Financial Services · February 2026 · Updated 31 July 2026 · 8 min read

Property has long been one of the most popular asset classes for SMSF trustees, and Self-Managed Super Funds hold over $900 billion in assets across Australia. From 10 August 2026, though, the rules for borrowing to buy property through an SMSF have narrowed significantly. New Limited Recourse Borrowing Arrangements (LRBAs) can only be used to acquire business real property. Residential property still has a place in an SMSF — but it can no longer be acquired using borrowed money under a new LRBA. This guide walks through both the new rules and the existing framework that continues to apply.

LRBA Basics: How SMSFs Borrow to Buy Property

Under section 67A of the Superannuation Industry (Supervision) Act 1993 (SIS Act), an SMSF can borrow money to acquire a single acquirable asset, provided the arrangement meets specific structural requirements:

• The asset must be held on trust by a separate bare trust (also called a holding trust or custodian trust) until the loan is fully repaid.
• The lender's recourse is limited to the asset being acquired — they cannot claim other SMSF assets if the borrower defaults.
• The asset must be a single acquirable asset (one property, not a portfolio).
• Once acquired, the asset cannot be replaced by a different asset under the same arrangement (though improvements that don't change its character are generally permitted).
• From 10 August 2026: if the acquirable asset is real property, it must be business real property at the time the LRBA is entered into and for the entire life of the arrangement.

Residential vs Commercial Property — The New Landscape

Residential property. Residential property remains an eligible SMSF investment — it just can no longer be acquired using a new LRBA from 10 August 2026. An SMSF that has the cash reserves to buy outright can still add residential property to its portfolio, subject to the existing rules: the property must be at arm's length, and no member (or related party of a member) can live in or rent it. This is a strict rule under section 65 of the SIS Act, and breaches can result in severe penalties.

Commercial and business real property. Commercial property remains the most flexible option and is now the only path forward for new LRBA-funded property acquisitions. If a property qualifies as business real property — broadly, land and buildings used wholly and exclusively in one or more businesses — it can be leased to a related party, including the member's own business. For business owners, holding business premises inside an SMSF continues to be one of the most powerful strategies available: you're effectively paying rent to your own super fund.

Note: primary production property containing a private dwelling can still qualify as business real property if the dwelling sits on no more than 2 hectares and the main use of the whole property is not private or domestic. This is a genuinely narrow definition — we work through it carefully on a case-by-case basis.

Transitional Rules — What's Grandfathered

The 10 August 2026 changes are prospective, not retrospective. The following arrangements are unaffected:

• Existing LRBAs. Any LRBA entered into before 10 August 2026 continues under the old rules — including residential-property LRBAs. These can be maintained through to loan repayment.
• Refinancing existing LRBAs. Refinancing a pre-10-August LRBA for the same asset (with the same or a new lender) is treated as maintaining the original arrangement, not entering a new one. The residential property does not need to become business real property.
• Binding contracts exchanged before 10 August 2026. If the SMSF has exchanged a binding contract to acquire property before 10 August 2026, the old rules apply — even if settlement or loan drawdown happens after that date. This includes off-the-plan purchases where the contract is exchanged in time. Significant later variations to the contract could reset this treatment.

For new LRBAs entered into on or after 10 August 2026, the property must be business real property both at the time the LRBA is entered into and for the entire life of the arrangement. If a property later stops being business real property — for example, the business use ends and the trustees don't relet it — the SMSF has breached the borrowing prohibition and compliance action may apply.

The 70% LVR Structure

For new LRBAs on business real property (from 10 August 2026), most SMSF lenders will lend up to 65–70% of the property value. This means the SMSF needs at least 30–35% of the purchase price plus costs (stamp duty, legal fees, establishment costs) in cash before proceeding. For a $600,000 commercial property, the SMSF would typically need around $210,000–$230,000 in available cash after allowing for all acquisition costs and a sensible buffer. Interest rates on SMSF loans are typically 0.5–1.0% higher than standard investment loans.

For grandfathered residential LRBAs (contracts exchanged before 10 August 2026), the historical residential LVR settings — typically up to 70% — continue to apply, subject to individual lender policy.

Tax Efficiency: The Super Advantage

Property held within super benefits from concessional tax rates:

• Accumulation phase: Rental income is taxed at just 15%, and capital gains held for more than 12 months receive a one-third discount, resulting in an effective CGT rate of 10%.
• Pension phase: Once the SMSF is paying a pension (typically in retirement), both rental income and capital gains can be completely tax-free — 0%.

Compare this to an individual on the top marginal tax rate paying 47% on rental income and up to 23.5% on discounted capital gains. Over a long holding period, the difference is significant. These tax settings apply to all SMSF property — residential and business real property alike — regardless of whether the property is geared under a grandfathered LRBA or held outright.

The Sole Purpose Test

Section 62 of the SIS Act requires that the fund be maintained for the sole purpose of providing retirement benefits to members (or their dependants upon death). Every investment decision, including property acquisitions, must satisfy this test. Trustees who acquire property for lifestyle or personal benefit — holiday homes, renovation projects, or properties earmarked for a child — risk serious compliance action from the ATO.

Business Real Property: Using Your Own Premises

For business owners, holding business premises in an SMSF remains exceptionally attractive — and is now the primary LRBA pathway:

• The business pays market-rate rent to the SMSF, which is tax-deductible to the business.
• The SMSF receives the rent at a concessional 15% tax rate (or 0% in pension phase).
• The property appreciates inside the tax-effective super environment.
• On eventual sale, CGT is concessionally taxed or tax-free.

The rent must be at market value — not above or below — and supported by an independent valuation. A formal lease agreement should be in place. And, under the new rules, the property must remain wholly and exclusively used in a business for the entire life of the LRBA.

Risks and Considerations

• Illiquidity: Property cannot be sold quickly. If the fund needs to pay benefits or meet a pension obligation, an illiquid property creates challenges.
• Concentration risk: A single property may represent a large proportion of the fund's assets, breaching the principle of diversification.
• Compliance costs: LRBA structures require separate bare trusts, additional legal documentation, annual audits, and ongoing compliance monitoring. These costs erode returns on smaller properties.
• Cash flow management: The SMSF must have sufficient cash flow to meet loan repayments, insurance premiums, property maintenance, and operating expenses — even during vacancy periods.
• Contribution caps: The SMSF can only receive contributions within annual caps, limiting the ability to inject additional funds if the property requires unexpected capital expenditure.
• Change-of-use risk (new LRBAs): A business real property that stops being used in a business — even temporarily, if plans to relet are abandoned — will breach the LRBA rules. This risk needs to be managed for the full life of the loan.