Simple hacks to buy investment property with super

Buying investment property through your Self-Managed Super Fund can build wealth inside a tax-advantaged structure.

The way SMSFs borrow to purchase property changed on 10 August 2026. New legislation now restricts Limited Recourse Borrowing Arrangements for residential property, but commercial property purchases remain available. Victorian investors considering an SMSF loan need to understand which options still exist and how the new rules affect their plans.

What Changed on 10 August 2026 for SMSF Property Loans

From 10 August 2026, SMSFs can no longer borrow to purchase residential property under a Limited Recourse Borrowing Arrangement. The restriction applies to new arrangements only. Existing residential LRBA arrangements entered before that date remain valid and can be refinanced without triggering the new rules. SMSFs can still own residential property purchased with cash or held before the changes commenced.

The new rules do not affect commercial property. An SMSF can still borrow to acquire business real property, provided the property meets the definition under section 66 of the SIS Act. This means the property must be used wholly and exclusively in one or more businesses. Whether a property qualifies depends on its actual use at the time of acquisition, not how it is marketed or zoned.

Consider an SMSF trustee in Victoria who exchanged a binding contract to purchase a residential property on 5 August 2026 but settled on 20 August 2026. That arrangement is protected by the transitional provisions and can proceed as planned. The same trustee looking to borrow for a second residential property after 10 August would not be able to use an LRBA for that purchase.

Using Super to Buy Commercial Investment Property

Commercial property borrowing through an SMSF remains unchanged. The property must be business real property, meaning land and buildings used wholly and exclusively in one or more businesses. The business using the property does not need to be operated by the SMSF or a related party.

In our experience, Victorian trustees often consider small warehouses, professional suites, and retail premises. A medical consulting room leased to a GP practice qualifies. A suburban retail shop leased to an independent retailer qualifies. An office leased to a law firm qualifies. The key requirement is that the property is used for business purposes only.

The SMSF mortgage broker process for commercial property involves additional documentation compared to residential lending. Lenders assess the income-producing capacity of the property, the quality of the tenant, and the lease terms. A property with a strong tenant on a long lease will generally support a higher loan-to-value ratio than a vacant property or one with short-term leases.

Mixed-use properties require detailed assessment. A property with both commercial and residential components may not qualify as business real property, or may only partially qualify. A dwelling on a primary production property occupying no more than 2 hectares does not cause the property to fail the wholly and exclusively test, provided the main use of the whole property is not domestic or private. This concession applies specifically to primary production property and is not a general exemption.

SMSF Deposit Requirements and LVR Limits

Most lenders offering SMSF commercial loans require a minimum deposit of 30 to 40 percent. This produces a maximum loan-to-value ratio of 60 to 70 percent. Some lenders will accept lower deposits for properties with strong tenants and long lease terms, but expect to provide at least 30 percent of the purchase price from existing SMSF funds.

The deposit must come from the SMSF's existing balance or from contributions made by members. Contributions are subject to annual caps. From 1 July 2026, the concessional contributions cap is $32,500 per member per year, and the non-concessional contributions cap is $130,000 per member per year. Members with a total superannuation balance below $1.84 million on 30 June of the previous year may access the bring-forward arrangement, allowing up to $390,000 in non-concessional contributions over three years.

An SMSF with two members and a combined balance of $200,000 considering a $500,000 commercial property would need to fund a $150,000 deposit plus acquisition costs. If the existing balance is insufficient, both members could make non-concessional contributions to bring the fund balance to the required level, subject to their individual contribution caps and total superannuation balances.

How Limited Recourse Borrowing Arrangements Work

A Limited Recourse Borrowing Arrangement involves three parties: the SMSF trustee, a holding trust, and a lender. The borrowed money is used to acquire a single asset, which is held in the holding trust. The SMSF holds a beneficial interest in the asset and gains legal ownership after the loan is repaid. If the loan defaults, the lender's recourse is limited to the asset in the holding trust. Other SMSF assets are protected.

The holding trust is typically a bare trust. A discretionary trust cannot be used. The SMSF trustee must have the right to acquire legal ownership of the asset after making one or more payments. Rental income generated by the property flows to the SMSF and can be used to service the loan or support other fund expenses.

Borrowed funds cannot be used to improve an existing SMSF asset. The loan must be used to acquire the property and cover associated costs such as stamp duty and loan establishment fees. Once the property is acquired, any improvements must be funded from the SMSF's own resources, not from additional borrowings under the LRBA.

Tax Treatment of Rental Income and Capital Gains

Rental income received by an SMSF is taxed at 15 percent during the accumulation phase. Where the SMSF is paying a retirement-phase pension and the property is a segregated current pension asset, rental income may be eligible for the exempt current pension income concession and taxed at 0 percent. The outcome depends on whether the fund's assets are fully segregated or subject to the proportionate method.

Capital gains on the sale of property held for at least 12 months may attract a one-third CGT discount during accumulation phase, producing a maximum effective rate of 10 percent on the discounted gain. The actual tax liability depends on the property's cost base, selling costs, capital improvements, and the fund's overall tax position. Where the property is a segregated current pension asset and the fund satisfies the relevant conditions, the capital gain may be fully exempt.

Where a member's total superannuation balance exceeds $3 million at the end of the financial year, Division 296 tax of 15 percent applies to the proportion of earnings attributable to the amount above that threshold. A further 10 percent applies to balances exceeding $10 million. For Division 296 purposes, an unrealised increase in property value does not constitute assessable income. Rental income and realised capital gains may contribute to the Division 296 calculation. LRBA amounts are disregarded when calculating a member's total superannuation balance for Division 296 tax purposes.

Refinancing an Existing SMSF Property Loan

SMSFs with residential property loans entered before 10 August 2026 can refinance those arrangements without the refinanced loan being subject to the new restrictions. The ATO considers refinancing to mean entering into a new loan contract for the same asset, with the same or a new lender. Trustees can switch lenders or renegotiate terms without triggering the post-commencement rules.

A significant change to the terms or conditions of an LRBA may end the existing arrangement and create a new one. Circumstances that may end an existing arrangement include refinancing that is inconsistent with the original arrangement, borrowing to acquire an asset not contemplated under the original arrangement, and changes to the ultimate beneficiaries. A new arrangement entered on or after 10 August 2026 involving residential property cannot proceed under the updated legislation.

Commercial LRBA refinancing is not affected by the 2026 changes. The refinanced loan must relate to the same single asset, maintain the limited recourse character, and meet arm's length terms. The ATO publishes safe harbour interest rates for SMSF loans annually under Practical Compliance Guideline PCG 2016/5. Arrangements that do not meet arm's length terms may result in income being assessed as non-arm's length income and taxed at 45 percent.

Comparing SMSF Lenders and Interest Rates

SMSF commercial property loans are offered by a smaller group of lenders than standard investment loans. Most major banks provide SMSF lending, along with several specialist non-bank lenders. Interest rates for SMSF loans are typically higher than standard residential investment loans due to the additional complexity and risk.

We regularly see SMSF variable rates sitting above standard variable rates by 0.5 to 1.0 percent. Fixed rate options are available but less common. Lenders assess the SMSF's financial position, the property's income-producing capacity, and the quality of the tenant. A strong lease with a creditworthy tenant can improve the interest rate offered.

Comparing lenders involves more than the interest rate. Consider the loan-to-value ratio offered, whether offset accounts are available, the flexibility to make additional repayments, and the lender's experience with SMSF lending. Not all lenders accept all types of commercial property. Some exclude certain property types such as service stations, licensed premises, or specialty retail.

An SMSF mortgage broker can compare options across multiple lenders and identify which lenders accept the specific property type you are considering. Lender appetite for SMSF commercial property varies, and policies change regularly. Having access to multiple lenders increases the likelihood of a favourable outcome.

Sole Purpose Test and Compliance Obligations

Every SMSF investment must satisfy the sole purpose test under section 62 of the SIS Act. The fund must be maintained solely to provide retirement benefits to members. Any decision that provides a present-day benefit to a member or related party may contravene this requirement.

An SMSF cannot acquire property from a related party unless the property is business real property and the acquisition is made on arm's length terms. An SMSF cannot lease residential property to a member or a related party of a member. An SMSF can lease commercial property to a related party, provided the lease is on arm's length terms at market value and the property qualifies as business real property.

Trustees must ensure the property is maintained solely for the purpose of providing retirement benefits. Using the property for personal purposes, allowing a member or related party to occupy the property, or making decisions that favour a member's present-day interests over the fund's retirement purpose will breach the sole purpose test and may result in penalties, loss of tax concessions, or disqualification of the trustee.

Call one of our team or book an appointment at a time that works for you. We can walk through your SMSF borrowing capacity, compare lenders suited to your property type, and make sure the structure you set up meets the current legislative requirements.

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