Your SMSF can still borrow to buy a retail property, but only if the property qualifies as business real property.
If you live in Rye and have been eyeing a shopfront, here is the short version. The rules for borrowing inside super changed recently, and they favour commercial premises that are genuinely used by a business. That suits retail well, as long as the details are right from day one.
How Does an SMSF Loan Work for Buying Property?
An SMSF loan is a limited recourse borrowing arrangement (LRBA), where the fund borrows to buy one asset that is held in a separate holding trust. The lender's recourse is limited to that asset, not the rest of the fund.
The SMSF gets a beneficial interest in the property and the right to legal ownership once the loan is repaid. A few conditions apply. The borrowed money must go towards a single asset, and it can cover costs like loan establishment and stamp duty. It cannot be used to improve the property. An asset the fund already owns cannot be moved into an LRBA.
If you are exploring SMSF property loans, this structure is the foundation everything else sits on.
What Changed for SMSF Property Loans on 10 August 2026?
For an LRBA entered into on or after 10 August 2026, the property must be business real property. That generally means land and buildings used wholly and exclusively in one or more businesses.
The ATO has been clear that LRBAs are not banned, and the way they operate is otherwise unchanged. The rule applies whether the lender is a bank, a non-bank or a related party. Loans entered into before that date are not affected, including when they are maintained or refinanced later. There is also a transitional rule if your fund exchanged a binding contract before 10 August 2026.
A retail shop leased to a trading business is the sort of property that could meet the test. A holiday rental or a home could not be financed this way under the new rule.
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Does a Retail Property Have to Stay Business Real Property?
Yes. The property must be business real property when the loan starts and for the whole life of the loan.
If it stops being used wholly and exclusively in a business, the fund could be in breach of the law against borrowing, and compliance action may apply. Resuming business use later does not erase the earlier breach.
A vacant shop is treated with some care. The ATO says land with leased commercial premises does not lose its status just because the owner is looking for a new tenant. It does lose it if the owner abandons plans to lease. If the premises are new and awaiting approvals, the fund needs to show the business has commenced when the loan is entered into and that the property will be used in it.
The trade-off is real. Your lending is tied to your tenant. A long vacancy with no clear plan to re-let can put the whole arrangement at risk.
A Worked Example: Repayments on an SMSF Retail Purchase
Consider a fund that borrows $600,000 over 25 years to buy a small retail premises leased to a local business. Using an illustrative rate of 6.75% p.a., principal and interest repayments would be roughly $4,145 a month. That rate is an example only, and actual rates vary by lender, deposit size and property type.
The trustees check the fund's cash flow. Rent from the tenant and ongoing contributions need to comfortably cover the repayment, plus costs such as rates, insurance and maintenance. They work this through with a broker, compare a few lenders, and settle on a loan structured with a deposit large enough to meet the lender's LVR limit.
To test your own numbers, try the mortgage repayment calculator. Lenders assess SMSF loans on the fund's own position, such as its income, liquidity and balance, rather than on your personal income alone.
What Does the Tax Treatment Look Like for an SMSF Property?
A complying SMSF is generally taxed at 15 per cent on assessable income, and a one-third CGT discount can apply if the asset is held for at least 12 months. That discount gives an effective rate of 10 per cent on the discounted gain, though it is not a fixed CGT rate.
In the pension phase, income from assets supporting a retirement income stream could be exempt, but a capital gain is not automatically exempt because a pension has started. Whether it is exempt depends on the method used to calculate the exemption.
Division 296 tax also applies from 1 July 2026 to members with a total super balance above $3 million for 2026-27. LRBA amounts are never counted in that balance for Division 296 purposes. Please talk to your accountant about how all of this applies to your fund.
Why Use an SMSF Mortgage Broker for a Retail Purchase?
Lenders differ on deposit requirements, LVR and interest rate structure, and may apply their own credit policy to commercial property. Whether a property is business real property is a legal test, so get advice on it. A broker can compare options for you before you commit.
This matters more under the new rule, because the property type decides whether a loan is allowed at all. Your accountant, SMSF specialist and broker should all agree on the structure before you sign a contract. If you already hold an SMSF loan, SMSF loan refinance is worth a look, and for the property side, our commercial property loans page covers how lenders view retail premises.
The ATO has also opened consultation on draft updates to its rulings on LRBAs and business real property, so some detail could still shift. Rye is a small bayside community on the Mornington Peninsula, and our local team is happy to sit down with you at the Rye mortgage broker page or on a call.
Call one of our team or book an appointment at a time that works for you, and we will talk through whether a retail property could suit your fund. Your accountant and a licensed SMSF specialist should be part of the conversation too.
Frequently Asked Questions
Can an SMSF still borrow to buy a retail property?
Yes, if the property is business real property. For loans entered into on or after 10 August 2026, the land and buildings must be used wholly and exclusively in one or more businesses.
Does the property have to stay business real property?
Yes. It must qualify when the loan starts and for the life of the loan, or the fund could breach the law against borrowing.
Are loans from before 10 August 2026 affected?
No. An LRBA entered into before that date is not affected by the new rule, including if it is later maintained or refinanced.
Is SMSF property income taxed?
A complying SMSF is generally taxed at 15 per cent, with a one-third CGT discount possible after 12 months. Speak to your accountant about how this applies to your fund.
