Commercial Property in SMSFs: Why It Could Make Sense

For many small business owners, purchasing commercial property through a Self-Managed Super Fund (SMSF) is a strategic fusion of business operations and retirement planning.

Often, the commercial property tied to a small business, such as a retail café or workshop, carries a higher value than the business itself. This makes the property a significant asset within an SMSF, important in shaping long-term retirement outcomes.

The Financial Advantage of Renting to Yourself

SMSFs are uniquely permitted to purchase business real property from related parties, such as the business owned by the SMSF member, provided all transactions occur at market value and on arm’s-length terms. This allows business owners to lease their commercial premises from their SMSF, with rent paid at market rates directly into the fund, supporting mortgage repayments and contributing toward retirement savings.

Once the mortgage is paid off or the business closes, the property can continue to generate income by leasing to new tenants, offering sustained stability.

Renting Versus Owning

Many successful small businesses last decades, sometimes 20 to 30 years or more, during which rent typically compounds annually (e.g. Upcoming rent increases are calculated on the current rent, which already includes last year’s adjustment, causing rent to compound annually). When compounded over decades, this is huge.

As Albert Einstein famously remarked, compound interest is the eighth wonder of the world. Hence, it’s crucial to make this work for you rather than against you.

In contrast, mortgage repayments on an SMSF-owned property respond mainly to interest rate fluctuations and lack this compounding effect, offering a more predictable and potentially less costly financial commitment.

Property ownership also offers flexibility, allowing trustees to refinance loans, negotiate fixed interest rates, or opt for interest-only repayments, benefits rarely available to tenants leasing commercial premises.

More Control

One of the standout benefits of owning commercial property through an SMSF is the increased control over the premises.

Ownership of commercial property through an SMSF provides trustees with a level of control unattainable in traditional leasing. Trustees may sub-lease sections of the property, customise or renovate premises to suit evolving business requirements, and invest in lasting improvements. This flexibility supports business agility and protects asset value, creating a secure foundation for growth and adaptation.

Enhancements to the commercial property remain valuable SMSF assets, even if the underlying business discontinues or is sold, safeguarding long-term fund value.

Overcoming Borrowing Barriers

Self-employed individuals often face borrowing limitations when seeking finance through conventional channels due to irregular business revenue or income, cash flow challenges, credit considerations, or even the type of industry they are in.

By using an SMSF, trustees can pool resources and leverage the fund’s borrowing capacity under a Limited Recourse Borrowing Arrangement (LRBA), unlocking opportunities to acquire commercial properties that would otherwise be beyond reach. This pathway is particularly valuable in competitive markets where timely access to quality assets matters.

Trustees must ensure all borrowing and property management adhere to compliance requirements, including proper documentation, market-value valuations, and timely rent payments.

Strategy

Commercial property ownership within an SMSF offers trustees significant control over their premises, enabling them to adapt the space through renovations, sub-lease portions, or invest in improvements with the assurance that these enhancements remain part of the SMSF asset even if the business ceases. This operational flexibility distinguishes SMSF commercial property investment from traditional leasing arrangements, where tenants seldom have such control or long-term asset security.

While the benefits of SMSF commercial property investment are compelling, trustees must navigate a web of compliance obligations. The establishment of a bare trust for borrowing purposes, adherence to arm’s-length transaction rules, and continuous alignment with the fund’s overall investment strategy are imperative.

Sound cash flow management, risk assessment, and securing professional advice remain critical pillars in building sustainable retirement wealth through SMSF property.

Summary

While borrowing restrictions can challenge self-employed individuals and small business owners seeking property ownership, using an SMSF consolidates assets and borrowing capacity. This approach opens doors to financing opportunities that may not be available personally, particularly in competitive real estate markets, where rapid decision-making is crucial.

Nevertheless, SMSF commercial property investment demands comprehensive planning, risk management, and the guidance of financial professionals to navigate the complex legal and regulatory landscape. When executed effectively, it serves as a robust vehicle to build retirement wealth while maintaining operational resilience in the owner's business.

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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 #BusinessPremisesSMSF #SMSFInvestments2025 #RetirementPlanning