I hear a version of the same line from trustees again and again: this is my last money, and I want to do it right. That is the right frame for any commercial purchase inside a self-managed super fund. The main risks are vacancy the fund still has to pay for, one asset carrying most of the fund, not enough cash for pension payments or a death benefit, related-party leases priced away from market, a property that stops being business real property while a loan is on foot, and an exit that takes months when the fund needs money in weeks.
Commercial property is not always the better choice for a fund, and this page does not compare it with any super fund or investment option. That is a question for your licensed adviser. What I can give you is the downside list I work through before a fund buys, and when my answer is no. The rules themselves sit in SMSF commercial property rules after the 2026 LRBA ban. This page is about what goes wrong inside them.
Why risk comes before yield with retirement capital
Outside super, a commercial property that goes wrong can usually be funded from salary or other assets. Inside a fund, it sits under a trustee duty. Section 62 of the Superannuation Industry (Supervision) Act 1993 requires the fund to be maintained for the sole purpose of providing retirement benefits, and section 52B requires trustees to formulate, review regularly and give effect to an investment strategy. Regulation 4.09 of the SIS Regulations says that strategy must have regard to risk and likely return, diversification, liquidity and the fund's ability to pay benefits and meet its other liabilities.
The law already asks the downside questions. I ask them before a contract exists, because declining a property before exchange is far easier than fixing a strategy after settlement.
Vacancy, and who pays outgoings while it is empty
When a commercial tenant leaves, the rent stops but the costs do not. Rates, land tax where it applies, insurance, strata levies, repairs and, on a geared purchase, loan repayments keep landing on the fund. On a net lease many of those were recovered from the tenant. Once the space is empty, the fund carries all of them, sometimes alongside an incentive to attract the next tenant.
Contributions are the main way to refill the fund, and they are capped. On the ATO's published figures for 2026-27, the general concessional contributions cap is $32,500 and the general non-concessional cap is $130,000, and total super balance rules can reduce non-concessional room to nil. Those caps do not stretch because the property has sat empty for months. SMSF cash purchase and contribution caps covers how caps shape funding generally.
I check the outgoings schedule, who recovers what under the lease, and what the fund would carry each month if the space were empty. Recovering outgoings vs market rent and gross lease vs net lease go through that read in detail.
One asset, one tenant: concentration inside a fund
A single commercial property can easily be most of a small fund, and that is allowed. The ATO's investment strategy guidance says trustees can invest all of their retirement savings in one asset or asset class, but where most of the fund sits in one asset, the strategy should document that the trustees considered the risks of inadequate diversification and how the investment still meets the fund's objectives, including cash flow requirements. Your auditor will look for that reasoning.
Concentration is sharper in commercial because one asset often means one tenant, so the whole income line depends on one business and one lease expiry. How to calculate WALE explains why a single number on a flyer does not answer that question. The SMSF commercial property buyer path sets out how leaseback and third-party tenanted deals stack risk differently.
Liquidity for pension phase and member benefits
This is the risk trustees nearing retirement most often underweight. Once a member starts an account-based pension, the fund must pay a minimum amount each year. Schedule 7 of the SIS Regulations sets the factors, and the ATO's current table shows 4% of the account balance for members under 65, 5% from 65 to 74 and 6% from 75 to 79, rising with age after that. A building cannot be carved up to meet a pension payment, so rent and other liquid assets have to cover it, even in a year the tenant leaves.
Death benefits are the harder version. Regulation 6.21 of the SIS Regulations requires a deceased member's benefits to be cashed as soon as practicable, and the ATO notes that a non-dependant beneficiary must receive a lump sum, in no more than two amounts. A fund that is mostly one commercial property may face a sale on a timeline set by the law rather than the market. I raise this with every two-member fund, because the surviving trustee carries it. The liquidity test in Can my SMSF buy property? is where I start that conversation.
Borrowing rules: LRBA, bare trust and lender limits
From 10 August 2026, the ATO confirms that a new limited recourse borrowing arrangement can only be used to acquire real property that is business real property. The property must be business real property when the LRBA is entered into and must continue to meet that definition for the life of the arrangement. That second condition is a live risk. If the use changes or part of the building drifts into private use, the fund may have a problem it did not have at settlement.
Sections 67A and 67B of the SIS Act also restrict the asset. An LRBA covers a single acquirable asset, and the fund cannot borrow to improve it. ATO ruling SMSFR 2012/1 draws the line between a repair or maintenance, which borrowed money can fund, and an improvement, which it cannot, and between an improvement and a change that makes it a different asset altogether. SMSF bare trust covers the holding trust timing, and SMSF setup before commercial property covers getting the fund ready to borrow at all.
Lender terms sit on top of the law and change often. I do not quote them or give credit advice, but I want a lender's position on the actual fund before we price a property.
Getting the lease wrong: related parties, NALI and in-house assets
A leaseback of a business owner's premises is legitimate when done properly. Section 66 of the SIS Act allows a fund to acquire business real property from a related party at market value, and section 71(1)(g) excludes business real property leased to a related party under an enforceable lease from the in-house asset rules. Without that exception, sections 82 to 84 cap in-house assets at 5% of the fund's total market value.
That exception only holds while the property is business real property and the lease is enforceable. Pricing is the other trap. Section 109 of the SIS Act requires dealings with related parties to be on arm's length terms, and under section 295-550 of the Income Tax Assessment Act 1997 non-arm's length income is taxed at the highest marginal rate rather than the fund's concessional rate. Rent set as a favour, in either direction, is how a good structure becomes an expensive one. Business real property in an SMSF is the gate I run on this before any leaseback goes further.
Valuation, audit and exit
Regulation 8.02B of the SIS Regulations requires fund assets to be valued at market value each year, and on a related-party lease both rent and value need evidence an auditor can read. SMSF property valuation covers what usually holds up at 30 June.
Exit is the risk nobody models at purchase. A commercial asset can take months to sell, the price depends on the lease you leave behind, and a sale timed by a pension, a death benefit or a lender runs on someone else's clock. If the long-term plan is for a member or their business to take the property out of the fund, structure that with advice from day one.
When I tell a trustee not to buy
I say no when the fund cannot carry an empty property without contributions it cannot make, or when one asset would leave it unable to meet expected pension payments. I say no when the business real property position is unclear at the point of borrowing, when the plan depends on borrowed money for improvements, or when leaseback rent is set to suit the business rather than the market. And I say no when the trustee is buying because a yield looks high rather than because the fund's investment strategy calls for this asset.
None of those are judgements about whether your fund should hold commercial property. That decision belongs to you as trustee, with your licensed advisers. My job is to keep the property side honest.
Frequently asked questions
Is commercial property in an SMSF risky?
It carries risks the fund wrapper sharpens: vacancy the fund still pays for, concentration, pension and death benefit liquidity, and the business real property and arm's length rules. Whether they suit a particular fund is a question for the trustee and their licensed adviser.
Can an SMSF hold most of its money in one commercial property?
The ATO says a fund can invest all of its savings in one asset or asset class, but the investment strategy must show the trustees considered the risks of inadequate diversification and how the fund will still meet its objectives and cash flow needs, as regulation 4.09 of the SIS Regulations requires.
What happens if my SMSF's commercial property is vacant?
The fund keeps paying the costs, including outgoings a tenant previously recovered and any loan repayments. Members can only top up within the 2026-27 general caps of $32,500 concessional and $130,000 non-concessional.
What if the property stops being business real property during the loan?
For LRBAs entered into from 10 August 2026, the ATO says the property must remain business real property for the life of the arrangement. A change in use can also affect the in-house asset exception on a related-party lease, so get advice before any change in tenant or use.
If you are weighing a commercial purchase inside your fund, the 7-Test SMSF Scorecard is a free two-minute screen of whether the fund is ready, including liquidity and contribution headroom. If the answer is not yet, you will hear that from me first.
This is general information only and does not consider your objectives, financial situation or needs. It is not financial, tax, legal or credit advice. Seek licensed professional advice specific to your situation before acting.
