Grow Your Business Through Commercial Property in Your SMSF

If you’re self-employed in Australia, you have full control over how much you earn. You’re probably on a constant move to grow your business and build a more secure financial future. You might be paying significant rent for your business premises, and perhaps you’ve often thought, “Imagine if this money was coming back to me.”Well, imagine no more. Here’s one of the most powerful strategies for business owners like you: use your Self-Managed Super Fund (SMSF) to purchase the commercial property where your business operates. Since your SMSF owns the business premises, any rent you pay will essentially return to the fund to help settle the mortgage repayments and eventually boost your retirement savings. At SMSF Loan Experts, we help self-employed Australians employ this powerful strategy, making the seemingly complex move of buying commercial property with their super clear and actionable. Let’s explore how this can work for you.

Why Commercial Property in Your SMSF Is a Win-Win

The Business Angle

With this strategy, you essentially stop paying rent to someone else. That’s the most tangible benefit. Instead of your rental payments disappearing into a landlord’s pocket, they’re directed into your super, growing your retirement savings over time. 

You feel more stable when you own your business space through your SMSF.

Unexpected rent increases, landlord concerns, and the uncertainty of lease renewals

are all things you no longer have to cope with. With an additional degree of control, you can make long-term, strategic choices for your growing business.

Your SMSF commercial property becomes an integral part of your business’s future, too. It provides a fixed base of operations, allowing for consistent planning. After all, it’s easier to expand a business when you know you have the physical room for it.

The SMSF & Retirement Angle

A commercial property adds a solid, income-producing asset to your SMSF portfolio. It’s a tangible asset you can see and easily understand. Your business pays rent to your SMSF, which then receives this income. This rental income contributes consistently to the growth of your fund and is taxed at the 15% concessional superannuation rate (or 0% in the retirement phase).

Your SMSF commercial property has the potential to increase in value over time, just like any other real estate investment. Your retirement fund is further strengthened by this capital growth and provides significant long-term wealth accumulation. Plus, real estate offers diversification beyond traditional shares or managed funds.

How It Works: The Bare Trust Structure and SMSF Commercial Loans

“How can my SMSF borrow money to buy property?” you might wonder. This is specifically covered by Australian superannuation laws, mainly through a structure called a Limited Recourse Borrowing Arrangement (LRBA). To put it simply, your SMSF uses a Bare Trust when it wishes to purchase real estate with borrowed money. Here’s what you should know:

The Bare Trust Explained

• A Bare Trust is a separate trust established specifically to hold the legal title of the property on behalf of your SMSF, but your super is still the beneficial owner. It gets all the income and capital growth, but the Bare Trust holds the legal ownership until the loan is fully repaid. The Bare Trust also limits the lender’s recourse. If, for any reason, your SMSF defaults on the loan, the lender’s claim is limited solely to the property held within the Bare Trust. This protects the other assets within your SMSF from being repossessed.

  
  

The Role of the Commercial Loan

• To facilitate this, your SMSF will apply for an SMSF commercial property loan. These are specialised loans designed for SMSFs and differ from standard personal or business loans. Lenders assess your SMSF’s capacity to repay the loan, considering factors like consistent contributions, other SMSF assets, and the projected rental income from the commercial property.

  
  

At SMSF Loan Experts, we can help you navigate the requirements for SMSF loans for commercial property, ensuring your application is strong and compliant.

Key Considerations Before Taking the Leap

While the benefits are clear, buying commercial property with your super is a huge step that requires careful planning and adherence to strict regulations. Here are some considerations to keep in mind before signing the dotted line: 

Related Party Rules Are Crucial

This is perhaps the most important rule to understand. If your SMSF purchases a commercial property from which your business, or a related entity, will operate, the arrangement must be on strict commercial, ‘arm’s length’ terms. This means:

• Market Rate Rent: Your business must pay rent to your SMSF at a fair market rate, similar to what an unrelated tenant would pay.
  

• Formal Lease Agreement: A legally prepared and enforceable commercial lease agreement must be in place.

  
  

• Timely Payments: Rent must be paid regularly and on time, just as you would with any other landlord. The ATO closely monitors these arrangements to ensure no present-day benefit is being provided to members outside of their retirement savings. Breaching these rules can lead to severe penalties.
  

Liquidity of Your SMSF

Property is an illiquid asset, so it’s not easily converted to cash. Your SMSF must maintain sufficient liquidity to comfortably cover SMSF commercial loan repayments, ongoing property expenses (like rates, insurance, and maintenance), and other superannuation obligations. The property should not over-dominate your SMSF’s overall asset allocation.

Due Diligence on the Commercial Property

Just like any property investment, thorough due diligence is essential. Consider the property’s location, condition, market value, and potential for stable rental income. Professional valuations are a non-negotiable part of the process.

Professional Advice Is Non-Negotiable

Dealing with SMSF commercial property loans and Australian superannuation law requires expert guidance. You will need a team of professionals on your side:

• Financial Advisor (specialising in SMSFs): To assess if this strategy aligns with your overall financial goals and SMSF investment strategy.
  

• SMSF Auditor: To ensure ongoing compliance with superannuation laws.
  

• Lending Specialist (like SMSF Loan Experts!): To help you secure the right SMSF commercial loans for your specific needs.
  

• Legal Counsel: To ensure all trust deeds, loan agreements, and lease agreements are legally sound and compliant.

  
  

Is This Strategy Right for Your Business?

Buying commercial property with super is a powerful tool, but it’s not for everyone. This strategy is typically ideal for business owners who:

• Have an established, profitable business with consistent and reliable cash flow

• Have a long-term need for commercial premises and anticipate stability in their business operations

• Have an SMSF with sufficient funds for a deposit, ongoing loan repayments, and other property-related costs without over-concentrating their super assets

• Are comfortable with the responsibilities of being a ‘landlord’ to their own business, ensuring all related-party transactions are strictly at arm’s length.
  

Take Better Control of Your Future

Imagine a future where the rent you pay builds your superannuation wealth, and your business premises are secure under your control. This vision is entirely achievable for many self-employed Australians through strategic SMSF commercial loans.

Don’t just dream about it—take the next step. Understanding the ins and outs of SMSF loans for commercial property and ensuring compliance with ATO regulations is where SMSF Loan Experts shines. We’re here to guide you through the process, answer your questions, and help you assess if buying commercial property with your super is the right strategic move for your unique situation. Reach out to us today, and let’s explore how your SMSF can work harder for you and your business.