Beginner's guide to SMSF loans for warehouses

Self-managed super funds can still borrow to buy commercial property, including warehouses, under a limited recourse borrowing arrangement.

The August 2026 changes to superannuation law restricted new borrowing for residential property but left commercial lending untouched. If you run a business in Hornsby and your super fund has enough capital, buying a warehouse through an SMSF loan gives you a tenant you already know and an asset that compounds inside a concessional tax structure.

What qualifies as business real property under the SIS Act

Business real property means land and buildings used wholly and exclusively in one or more businesses. The definition comes from section 66 of the Superannuation Industry (Supervision) Act 1993 and applies to both the in-house asset rules and the related party acquisition rules.

A warehouse leased to an operating company you control can qualify, provided the property is used for genuine commercial purposes. The business does not need to be carried on by the entity holding the property. Actual use at the time of acquisition determines whether the property meets the definition, not how it was marketed or zoned.

Consider a buyer who operates a logistics business from a leased facility near the Hornsby industrial precinct. The business generates enough profit to fund rent, but that rent disappears each month. The buyer's SMSF holds $400,000 in cash and the member has capacity to make additional contributions over the next few years. A small warehouse in the Hornsby area might sit within reach if the fund borrows under an LRBA. The member's business becomes the tenant, pays rent to the super fund at market rates, and the SMSF services the loan from that rental income. The property appreciates inside the fund's concessional tax environment, and the loan is repaid from a combination of rent and future contributions.

How a limited recourse borrowing arrangement works

The borrowed money must be used to acquire a single asset. The asset is held in a separate bare trust, and the SMSF acquires a beneficial interest in that asset. Legal ownership transfers to the fund after the loan is repaid.

If the loan defaults, the lender's recourse is limited to the asset held in the trust. No other fund assets are at risk. Investment returns from the property flow to the SMSF during the life of the loan. The holding trust cannot be a discretionary trust or a unit trust with multiple unit holders. Borrowed funds cannot be used to improve an existing asset or to acquire multiple properties on separate titles under a single LRBA.

Mixed-use properties require careful assessment. A warehouse with an attached office that serves the same business operation will usually qualify. A property with a residential component may not, or may only partially qualify depending on how much of the property is used for domestic purposes. The primary production concession allowing up to 2 hectares of dwelling does not apply to industrial or commercial properties in Hornsby.

Deposit and loan-to-value ratio requirements

Most lenders offering SMSF commercial loans will lend up to 70 percent of the property value. Some will go to 80 percent depending on the fund's overall position and the quality of the tenant.

That means the SMSF needs a deposit of at least 20 to 30 percent, plus stamp duty and settlement costs. For a property valued in the mid-six figures, the fund would need significant capital already accumulated or a strategy to make large concessional or non-concessional contributions in the lead-up to settlement.

Concessional contributions are capped at $32,500 per member per year from 1 July 2026. Non-concessional contributions are capped at $130,000 per member per year, with a bring-forward arrangement allowing up to $390,000 over three years if the member's total superannuation balance at 30 June of the prior year was below $1.84 million. These caps limit how quickly a fund can build the required deposit if starting from a lower balance.

Tax treatment of rental income and capital gains

Rental income received by the SMSF is taxed at 15 percent during the accumulation phase. Interest on the SMSF loan is deductible against that rental income, as are other allowable expenses such as repairs, insurance, and depreciation.

Where the property is held for at least 12 months and then sold, a one-third capital gains tax discount may apply to the gain, producing a maximum effective rate of 10 percent on the discounted component. The actual tax outcome depends on the property's cost base, improvements, and the fund's overall tax position for that year.

If the fund moves into pension phase and the property is held as a segregated current pension asset, capital gains on disposal may be entirely tax-free. Where the fund has both accumulation and pension interests, the exempt current pension income rules apply proportionately based on an actuarial certificate. Rental income attributable to pension phase assets is also tax-exempt during that period.

Leasing the property to a related party business

Business real property leased between the fund and a related party is excluded from the in-house asset rules, but the lease must be on arm's length terms at market value.

That means the rent charged needs to reflect what an independent tenant would pay for the same property in the same condition. The lease agreement should be documented in writing, reviewed periodically, and adjusted if market conditions change. Charging below-market rent to assist the operating business may breach the sole purpose test under section 62 of the SIS Act, which requires the fund to be maintained solely to provide retirement benefits.

In our experience, the documentation and valuation evidence matters more than trustees expect. The ATO can review related party leases, and a rent reduction that benefits the member's business today at the expense of the fund's long-term position will draw attention during an audit.

How the 2026 legislation affects existing and new arrangements

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026 and commenced on 10 August 2026. The new rules inserted a condition into subsection 67A(2) of the SIS Act that restricts new LRBAs for real property to business real property only.

Residential property can no longer be acquired under a new LRBA entered into on or after 10 August 2026. Commercial property including warehouses, retail, and industrial assets remain available for borrowing.

Arrangements existing before 10 August 2026 are not affected. Trustees with residential LRBAs in place before that date can continue to hold the property, make loan repayments, and refinance the arrangement to another lender without triggering the new rules. Contracts exchanged before 10 August 2026 are also protected, even if settlement or the LRBA is entered into after that date.

Refinancing an SMSF commercial loan

Refinancing an SMSF commercial loan is not affected by the 2026 changes. The ATO considers refinancing to mean entering into a new loan contract for the same asset, with the same or a new lender.

The refinanced loan must relate to the same single asset, maintain the limited recourse character of the original arrangement, and meet arm's length interest rate terms. The ATO publishes safe harbour interest rates for SMSF LRBAs under Practical Compliance Guideline PCG 2016/5, updated annually. Income from an arrangement that does not meet arm's length terms may be assessed as non-arm's length income and taxed at 45 percent.

A significant change to the terms or conditions of an LRBA can end the existing arrangement and start a new one. Refinancing that is inconsistent with the original arrangement, borrowing to acquire an asset not contemplated under the original arrangement, or changes to the ultimate beneficiaries may trigger this outcome. Commercial LRBA holders refinancing to access a lower variable rate or switch to a fixed rate term are generally within safe harbour provided the loan remains for the same property and the same beneficial ownership structure.

Division 296 tax and unrealised gains

From 1 July 2026, members with a total superannuation balance exceeding $3 million at the end of the financial year face an additional 15 percent tax on earnings attributable to the amount above that threshold. A further 10 percent applies to balances exceeding $10 million.

Division 296 tax applies to realised earnings, not unrealised increases in property value. A warehouse held under an LRBA that appreciates over time does not trigger Division 296 tax until a CGT event occurs, typically on sale. Rental income and realised capital gains do contribute to the Division 296 calculation.

LRBA amounts are disregarded when calculating a member's total superannuation balance for Division 296 purposes. If the warehouse is valued at $800,000 and the outstanding loan is $500,000, only the net equity of $300,000 counts toward the member's balance. That makes commercial property held under an LRBA more efficient from a Division 296 perspective than an unencumbered property of the same value, assuming the member is close to or over the $3 million threshold.

Sole purpose test and trustee obligations

Every decision made by an SMSF trustee must satisfy the sole purpose test. The fund must be maintained solely to provide retirement benefits to members.

Buying a warehouse to house your operating business is compliant provided the rent is at market value, the property is genuinely used for business purposes, and the transaction benefits the fund's long-term position. Buying a property to give the member's business a below-market rent, or to support a related party transaction that advantages the member today at the fund's expense, will breach section 62.

Trustees also need to consider whether the fund has the capacity to service the loan and manage the property over the long term. If rental income is insufficient to cover loan repayments, contributions, or other fund expenses, the member will need to make additional contributions or the fund will need to sell other assets. Running out of liquidity in an SMSF can force asset sales at unfavourable times, particularly where the only substantial asset is an illiquid commercial property.

What Hornsby property investors should know before proceeding

Hornsby's commercial and light industrial precincts sit close to the M1 and the train line, making the area practical for businesses servicing the upper north shore and the Central Coast. Vacancy rates and rental yields vary depending on the property type and location within the broader area, but demand for smaller warehouse and workshop space has held reasonably steady over the past few years.

Before committing to an SMSF commercial loan, confirm that the property genuinely qualifies as business real property based on actual use, that the fund has enough capital to cover the deposit and costs, and that the rental income and contribution strategy can service the loan over the expected term. Work with a licensed SMSF specialist to structure the bare trust and holding arrangement correctly, and with a qualified valuer to establish market rent if leasing to a related party.

If your super fund has the balance and your business has the income to support the structure, buying a warehouse through an SMSF loan consolidates your operating base and builds a retirement asset in a tax-effective environment. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions