Avoid These 5 Mistakes When Leasing Back With Your SMSF

If you own a business in Caloundra, your super fund may be able to buy your premises and lease them back to your company. The key is that the property must meet strict rules, and those rules changed on 10 August 2026.

This guide walks through the mistakes we would help you steer clear of, so your fund and your business can grow together.

Can I Buy Commercial Property With My SMSF and Lease It to My Business?

Yes, an SMSF can buy business premises and lease them to a related party business, provided the purchase and lease meet super law. The ATO says leasing to a related party is allowed where the property is business real property, and the lease must be on arm's length terms.

This suits Caloundra owners who run a business from a workshop, clinic or office and want their rent to go to their own retirement savings instead of a landlord. Our SMSF loans team can talk through whether your fund is ready.

Mistake 1: Using a Property That Is Not Business Real Property

For a limited recourse borrowing arrangement entered into on or after 10 August 2026, real property can only be financed if it is business real property. This does not apply to loans entered into before that date, or where a binding contract was exchanged before it. Business real property means land and buildings used wholly and exclusively in one or more businesses.

The test applies when the loan starts and for the whole life of the loan. A property that is marketed as commercial still has to be used wholly and exclusively for business. If it fails, the fund may be in breach of the borrowing rules and compliance action can apply. A building with a residential flat upstairs may not meet the 'wholly and exclusively used in a business' test, so check the use of every part of the property before you sign.

The ATO has opened consultation on draft updates to its business real property ruling, and the drafts are not final. It is worth asking your adviser for the latest position.

Mistake 2: Getting the Loan Structure Wrong

An SMSF commercial loan must be set up as a limited recourse borrowing arrangement, where the property is held in a separate holding trust (often called a bare trust). The lender's recourse is limited to the asset.

The loan can be used to buy a single asset, or a collection of identical assets with the same market value that are treated as one. It can also cover costs like loan establishment and stamp duty. It cannot be used to improve the property. Separate titles generally cannot be bought under one loan, even if the properties look similar.

The trade-off is that lenders often ask for a larger deposit and may price these loans differently to standard commercial loans, depending on your deposit size and lender. A commercial loans specialist can help you compare lenders.

Mistake 3: Setting the Rent Away From Market Terms

The lease between your fund and your company must be on arm's length terms, meaning terms you would agree with an unrelated tenant. If the rent or terms are off, income can be treated as non-arm's length income, which is taxed at 45 per cent.

The same applies to the loan if a related party is the lender: it must not charge more than an arm's length rate of interest. The ATO's PCG 2016/5 sets out safe harbour loan terms, and trustees still need documents showing the arrangement is arm's length. Your accountant and a valuer can help you set and document the rent.

Mistake 4: Overlooking the Related Party Purchase Rules

If you want to sell your existing premises to your own fund, the related party acquisition rules apply. One exception is buying business real property at market value.

An existing asset already held by the fund cannot be moved into a borrowing arrangement either. These points need to be planned before contracts are signed. Also, the new rule does not apply if the fund exchanged a binding contract before 10 August 2026, but a significant change to that contract can be treated as a new arrangement.

How Is SMSF Commercial Rental Income and CGT Taxed?

In accumulation phase, a complying SMSF is generally taxed at 15 per cent on assessable income, which includes rent and net capital gains. If the fund owns the asset for at least 12 months, it can claim a one-third CGT discount, which gives an effective rate of 10 per cent on the discounted gain.

In pension phase, some income may be exempt, but a capital gain is not automatically exempt just because a pension has started. The outcome depends on how the fund calculates exempt current pension income. Tax outcomes vary, so speak with your accountant before you act.

A Caloundra Scenario: From Rent to Fund Asset

Consider a Caloundra tradesperson who rents a workshop for their company and wants those rent payments to build their super instead. Their SMSF has enough balance to meet a lender's deposit requirements, and the workshop is used only for the business.

They set up a bare trust, get a valuation, agree a market rent in a written lease, and apply for an SMSF commercial loan through a broker who compares lenders. The company then pays rent to the fund, and the fund uses it to meet loan repayments. The outcome is that the rent now supports the owner's retirement savings. The trade-off is that the fund carries the loan and is less diversified, and if the business closes, the fund may struggle to meet repayments or find a new tenant.

To see how repayments might look, try our mortgage repayment calculator. Any example should be treated as illustrative only.

Mistake 5: Forgetting Refinancing and Ongoing Compliance

A loan entered into before 10 August 2026 can be refinanced later without the property needing to be business real property. A loan entered into on or after that date must be refinanced while the property still meets the business real property test.

Refinancing means a new loan contract for the same asset, and it must meet the law at the time it is done. Each drawdown under a loan facility can also create a separate borrowing. If you want a second look at an existing loan, a loan health check is a good start.

If you are based on the coast, our local Mortgage Broker in Sunshine Coast team can walk you through each step. Get advice from a licensed specialist and your accountant before you commit.

Ready to put your super to work for your business and your future? Call one of our team or book an appointment at a time that works for you, and we will help you plan the next chapter with confidence.

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