SMSF commercial property just became the more interesting half of the fund-borrowing conversation, and not because anyone at Treasury set out to make it so. From 10 August 2026, trustees can no longer enter a new Limited Recourse Borrowing Arrangement to buy residential property inside an SMSF. Commercial property LRBAs are untouched. If your fund was weighing a geared purchase, the residential window has closed and the commercial one is now the only borrowed path left. Here's what actually changed, what still qualifies, and the rules I run every commercial SMSF deal against.
What changed on 10 August 2026
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. From 10 August 2026, an SMSF can no longer enter a new LRBA to acquire property unless that property meets the legal definition of business real property. It's commonly described as a residential LRBA ban, but that's a simplification: the operative test is business real property, not property type. A handful of residential holdings still qualify (more on that below), and some commercial property doesn't.
Three transitional protections matter if your fund has a deal in motion. Grandfathering means existing LRBAs run to completion under the old rules; nothing forces an unwind. Refinancing an existing residential LRBA also remains available, provided the loan balance doesn't increase. And there's a transition window: a new residential LRBA is still valid if contracts exchange before 10 August 2026, even if settlement happens after that date. Timing and document sequencing are unforgiving here, so get the holding trust and every relevant entity correctly established before the cut-off, or grandfathering doesn't apply.
Outside those three cases, from 10 August 2026 the fund either buys residential property with cash, or it borrows against business real property.
Business real property, the test that now decides everything
Business real property is defined in the *Superannuation Industry (Supervision) Act 1993* (s. 66(5)) and explained in ATO ruling SMSFR 2009/1. Two conditions have to be met. The first is an eligible interest: a freehold, leasehold, or qualifying Crown land interest in real property. The second is the business use test: the land has to be used wholly and exclusively in one or more businesses, whether the fund's members run that business or not.
The test turns on use, not on the label "commercial" or "residential". That produces some genuinely counterintuitive outcomes. A residence used entirely as a professional practice, or land held as trading stock by a developer, can qualify as business real property even though it looks residential on the title. A commercial building can fail the test if it's only partly used in a business, say, part-leased to a business tenant and part sitting vacant or used privately.
Primary production is expressly included. A working farm generally clears the test where farming is the predominant use, even with a dwelling on the land, provided the residential or private-use area stays within two hectares. The farming doesn't have to be run by the fund's members either; land leased to and worked by an unrelated third party can still qualify.
Rural lifestyle blocks and hobby farms are the properties most likely to fail. If the "farming" is a few head of cattle grazing around a large house, that's not going to clear a wholly-and-exclusively test.
Where the rules are still unsettled
New or off-the-plan commercial premises sit in a genuine grey zone right now. If a property isn't yet in business use at the point the fund acquires it, because it's still being built, or hasn't been leased, it's unclear whether it satisfies the business use test at settlement. This is a live question that further ATO guidance hasn't fully resolved. If your fund is looking at anything off-the-plan or newly constructed, get specific advice on the acquisition structure before contracts are signed, not after.
The mechanics that don't change
Everything the ATO has always required of an LRBA still applies to a commercial acquisition. The most consequential ones:
Single acquirable asset. The LRBA can only be used to buy one asset (or a collection of identical assets, like units in a single unit trust). You can't use one borrowing arrangement to buy a commercial property and then bolt on an unrelated asset later.
No improvements with borrowed money. Borrowed funds can pay for the purchase, repairs and maintenance, but not improvements that turn the asset into something functionally different. The fund can use its own cash (not the borrowed money) to improve the property, provided the improvement doesn't change its fundamental character while the loan is in place. This is the rule that catches out trustees who plan to buy a tired commercial building and substantially redevelop it inside the LRBA. If redevelopment is the plan, the fund typically needs to own the asset outright, unencumbered, before that work starts.
The related-party lease-back. This is the reason commercial LRBAs matter so much to business owners: the fund can buy your business premises and lease them back to your operating company, at market rent, on arm's-length terms, without breaching the related-party and in-house asset rules that block a residential related-party purchase. Done properly, with a current market valuation from a qualified valuer and a documented commercial lease, it's one of the most durable SMSF strategies available. Done loosely, with rent set below market or no formal lease at all, it's an audit magnet.
The finance itself. Commercial LRBA lending runs harder than a standard investment loan: expect 30 to 40% deposits, higher rates than residential lending, and a servicing assessment based on the fund's income (rent plus contributions), not your personal salary. Get a broker who writes SMSF commercial loans regularly to confirm capacity before you go looking at property.
What this means if you're planning a fund purchase now
If your fund was heading toward a residential LRBA, the calculus has changed: either fund the purchase entirely in cash, or look at whether a commercial, business real property acquisition serves the same strategic purpose. For a lot of business-owner trustees, that second path was already the better fit; the 10 August 2026 change just removes the residential alternative and sharpens the decision.
Before any of this becomes a live transaction, I run every SMSF fund through the 7-Test SMSF Scorecard: a free two-minute screen of whether the fund is structurally ready to buy, including whether a commercial acquisition and lease-back will actually clear the business real property test. If the fund clears the screen, the SMSF lane sets out the full engagement: compliance triage first, property search and negotiation second, at a flat $15,000 including GST. If you're weighing commercial against residential more broadly, commercial versus residential property investment covers the yield and structural trade-offs outside super as well.
FAQ
Can my SMSF still buy commercial property with a loan after 10 August 2026?
Yes. The 2026 changes ban new LRBAs for property that doesn't meet the business real property test, and most commercial property used wholly and exclusively in a business qualifies. Commercial LRBAs remain fully available; it's residential LRBAs (outside the grandfathered exceptions) that are closing.
Does my SMSF have to unwind an existing residential LRBA?
No. Existing LRBAs are grandfathered and can run to natural completion under the old rules. Refinancing an existing residential LRBA also remains available, as long as the loan balance doesn't increase.
What is business real property in plain English?
Land or a building used wholly and exclusively in a business, whether or not the fund's own members run that business. It includes standard commercial premises like offices, warehouses and shops, and also working farms, but excludes property that's only partly used in a business or used privately alongside it.
Can my SMSF buy my business premises and lease it back to my company?
Generally yes, provided the property meets the business real property test, the lease is documented on arm's-length terms, and the rent is set at genuine market value. It's one of the most common and legitimate SMSF commercial strategies, and one of the few ways an SMSF can transact with a related party at all.
Is a new or off-the-plan commercial property covered by an LRBA?
This is currently unclear. Because the property isn't in business use until it's built and leased, whether it satisfies the business use test at the point of acquisition is an open question pending further ATO guidance. Get specific advice before signing anything off-the-plan.
The property analysis and cash flow model are free on your strategy call. That's how committed I am to the numbers. Commercial fund purchases get the same treatment as every other lane: nothing to pay until the numbers say yes.
*General information only. Not personal financial advice. The business real property test and the LRBA transitional rules are complex; get advice specific to your fund before acting. Individual outcomes vary.*
