Proven tips to fund a storage facility with super

Your Self-Managed Super Fund can still borrow to buy a storage facility.

The recent legislative changes that blocked residential LRBA arrangements from 10 August 2026 do not apply to business real property, which includes self-storage units that meet the sole purpose test. LRBAs for commercial property that satisfies the definition of business real property under section 66 of the SIS Act are not affected by the changes commencing 10 August 2026. Most storage facilities qualify because they operate as an income-generating business asset rather than a residential dwelling.

Why storage facilities appeal to SMSF trustees

Business real property generally means land and buildings used wholly and exclusively in one or more businesses. A storage facility rented to unrelated tenants on commercial terms typically satisfies that definition. You are not required to operate the business yourself. The property only needs to be used exclusively for business purposes by whoever occupies it.

Consider a Mont Albert SMSF holding two commercial properties in accumulation phase. The fund decides to acquire a small storage facility in nearby Box Hill to diversify its income sources and reduce exposure to a single tenant type. The facility generates steady monthly rental income with lower vacancy risk than a conventional office or retail space. The purchase requires an SMSF commercial loan structured as a Limited Recourse Borrowing Arrangement.

Storage facilities often trade at lower price points than other commercial assets, which can reduce loan size and ongoing interest costs. Maintenance obligations are generally lower than for retail or office premises. Tenant turnover is frequent but individual lease terms are short, so rent can adjust with market conditions. You do need to confirm the property qualifies under the business real property definition at the time of acquisition. A facility with an attached residential manager's unit may require legal advice to determine whether the entire property qualifies or whether the residential component disqualifies the arrangement.

How the LRBA structure works for a storage purchase

The borrowed money must be used to acquire a single asset, or a collection of identical assets with the same market value that can be treated as a single asset. A storage facility on a single title qualifies. You cannot use the same loan to acquire multiple properties on separate titles, even if they are adjacent or similar.

The facility is held in a bare trust during the loan term. The holding trust cannot be one in which the SMSF trustee is one of a number of unit holders in a unit trust. Your SMSF acquires a beneficial interest in the asset, and legal ownership transfers once the loan is repaid. Rental income flows to the SMSF, not the holding trust. Loan repayments are made from the fund's cash reserves, which are typically funded by that rental income plus any additional contributions or returns from other fund assets.

If the loan defaults, only the asset held in trust is at risk. The lender has no recourse to other SMSF assets, your personal assets, or any other property held by the fund. A related party may provide a personal guarantee, but their recourse must also be limited to the asset under the arrangement.

Rental income and tax treatment in accumulation phase

A complying SMSF is taxed at a concessional rate of 15 percent on its assessable income, including net capital gains. Rental income from the storage facility is included in the fund's assessable income each year. Deductions for interest, rates, insurance, repairs and maintenance reduce taxable income in the usual way.

When the property is eventually sold, where an eligible asset has been held for at least 12 months, a one-third CGT discount may apply, which can produce a maximum effective rate of 10 percent on the discounted gain. The actual tax outcome depends on the property's cost base, acquisition costs, capital improvements, and whether the fund has carried-forward capital losses. Capital losses cannot be claimed against income and can only be offset against capital gains.

In a scenario where the Mont Albert SMSF acquires the Box Hill facility for commercial use and holds it for five years, the rental yield and capital appreciation both contribute to the fund's long-term position. If members have not yet commenced a pension, all investment returns are taxed at the concessional rate. If part of the fund moves into pension phase during the holding period, the tax treatment becomes more complex and an actuarial certificate may be required.

Related party leasing and arm's length compliance

Business real property leased between the fund and a related party of the fund is excluded from the in-house asset rules. This means your SMSF can lease the storage facility to a business you control, provided the lease is made on arm's length commercial terms.

You must charge market rent, maintain the property at the tenant's expense where appropriate, and document the arrangement in a written lease agreement. The ATO publishes safe harbour interest rates under PCG 2016/5 that apply to LRBA loans. Income from an arrangement that does not meet arm's length terms may be assessed as non-arm's length income and taxed at the highest marginal rate of 45 percent. That same principle applies to rental arrangements. If you undercharge rent to a related party, the ATO may treat the entire rental income stream as non-arm's length and tax it accordingly.

Where the facility is leased to unrelated commercial tenants, arm's length concerns are generally satisfied as long as the lease terms reflect market conditions. Most commercial property loans require regular rental reviews and independent valuations to confirm ongoing compliance.

Refinancing an existing SMSF commercial loan

Refinancing of commercial LRBA arrangements is not affected by the 2026 changes. If interest rates have moved or you want to access a lower rate with a different lender, you can refinance the loan without triggering the post-commencement residential restrictions.

Compliance conditions continue to apply, including that the refinanced loan must relate to the same single acquirable asset, maintain the limited recourse character of the original arrangement, and meet arm's length terms consistent with PCG 2016/5. You cannot use refinancing as an opportunity to extend the loan to acquire a second property or draw down additional funds for capital improvements. Borrowed funds cannot be used to improve an existing asset. If you want to renovate or expand the storage facility, those costs must be funded from the SMSF's existing cash reserves or other liquid assets.

For trustees holding a storage facility purchased before the 2026 changes, SMSF loan refinance remains a straightforward option to reduce interest costs or move to a lender with more suitable loan terms. The key is ensuring the refinanced arrangement does not introduce changes that the ATO would consider significant enough to end the original LRBA and start a new one.

Capital gains in pension phase and Division 296 tax

Once a member moves into pension phase, a capital gain is not automatically tax-free because an SMSF has commenced a pension. The tax treatment depends on whether the fund's assets are fully segregated or whether a proportionate method applies.

Where a fund's assets are fully segregated as current pension assets at all times during the income year, a capital gain on disposal of those assets is disregarded. If the fund holds both accumulation and pension interests, only the pension proportion of the gain may be exempt, and an actuarial certificate is required.

From 1 July 2026, where a member's total superannuation balance at the end of the financial year exceeds the large super balance threshold of $3 million, Division 296 tax of 15 percent applies to the proportion of earnings attributable to the amount above the threshold. A capital gain must be realised through a CGT event for it to form part of the fund's assessable income and therefore the Division 296 earnings base. If the storage facility is sold, the realised gain contributes to the Division 296 calculation for affected members. Unrealised value increases do not.

LRBA amounts are disregarded when calculating a member's TSB for Division 296 tax purposes. The outstanding loan balance is excluded from the balance test, which can reduce exposure to the additional tax where members are approaching the threshold.

Call one of our team or book an appointment at a time that works for you. We work with SMSF specialists and can help you structure a commercial LRBA that fits your fund's strategy and complies with the current legislative requirements.

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