Commercial Properties in SMSFs: Overview
- Editorial Team
- Mar 29
- 3 min read
Updated: Oct 29
Commercial property can be an attractive investment for Self-Managed Super Funds (SMSFs), particularly for business owners seeking to combine investment strategy with practical business needs.
Unlike residential property, commercial property within an SMSF offers unique advantages, such as the ability to lease the premises to a related business under strict compliance rules.
Buying Commercial Property in an SMSF
An SMSF can purchase commercial property directly or through a Limited Recourse Borrowing Arrangement (LRBA). If borrowing is involved, a bare trust structure is required to hold the property until the loan is repaid.
One of the key differences from residential property is that SMSFs can buy commercial property from related parties, provided the purchase occurs at market value and is on arm’s-length terms. This flexibility allows business owners to transfer their existing business premises into their SMSF, creating potential long-term benefits for both the fund and the business.
Using Commercial Property
Commercial property within an SMSF can be leased to a related party, such as a member’s own business. However, the lease must be properly documented, at commercial market rates, and on strictly arm’s-length terms. Rent must be paid on time and recorded accurately, as non-compliance may breach superannuation law.
This rule allows SMSF members who operate businesses to effectively pay rent into their own retirement fund, while still adhering to compliance obligations.
Managing and Maintaining the Property
The SMSF is responsible for all property-related costs, including maintenance, rates, insurance, and loan repayments. Rental income is paid directly into the SMSF, contributing to the fund’s ability to cover expenses and potentially grow the balance for members’ retirement benefits.
Trustees must also ensure that property management aligns with the SMSF’s investment strategy, including considerations of diversification, liquidity, and the fund’s overall risk profile.
Disposing of Commercial Property
SMSFs may sell commercial property to either related or unrelated parties, as long as the sale occurs at market value and on commercial terms. Unlike residential property, which cannot be sold to related parties, commercial property offers greater flexibility in disposal. Proper documentation and professional valuations are strongly recommended to demonstrate compliance.
Key Differences Between Commercial and Residential Property in SMSFs
While SMSFs can invest in both residential and commercial property, there are important differences:
Commercial property can be purchased from or leased to related parties, provided all dealings are at market value and on arm’s-length terms. Residential property cannot be purchased from or leased to related parties.
Trustees and their relatives cannot live in or use SMSF-owned residential property, while a related business can occupy SMSF-owned commercial property under a compliant lease.
Disposal of residential property to a related party is not allowed, whereas commercial property can be sold to a related party at market value.
These differences make commercial property a more flexible and often more practical choice for SMSF investors, especially for business owners.
Compliance
While commercial property offers unique advantages, SMSF trustees must always comply with the sole purpose test, the arm’s-length rule, and superannuation legislation. Seeking professional advice and documenting all transactions is critical to ensure ongoing compliance and long-term benefits for fund members.
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DISCLAIMER: This article is provided for general information only. While care has been taken, no guarantee is given as to the accuracy, completeness, or timeliness of the content. It does not constitute financial, accounting, legal, or SMSF advice and does not consider your personal circumstances. You should seek independent, licensed professional advice before making decisions about SMSFs, compliance, or investments. #SMSFCommercialProperty #SMSFPropertyRules #SuperannuationInvesting #SMSFCompliance
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