Key Takeaways
From 10 August 2026, a new limited recourse borrowing arrangement can only be used to buy business real property, and the property must stay that way for the life of the loan.
The property is held by a custodian company under a bare trust until the loan is repaid, while the fund keeps the rent and any growth.
The order of setup matters, and getting the contract name wrong can trigger a second round of stamp duty.
Budget for legal, lender and ongoing compliance costs and a cash buffer, not just the deposit and stamp duty.
Many business owners pay rent every month on premises their own super fund could own instead. A self-managed super fund (SMSF) can borrow to buy them, but only through a limited recourse borrowing arrangement (LRBA). Setting up an LRBA follows a set order, and small slips along the way can be expensive to undo.
The good news is that you won't be working it out alone. Your accountant and solicitor look after the structure, and an SMSF loan broker finds a lender whose policy suits your fund, so each step lands in the right order.
What an LRBA Is and What It Can Buy
An LRBA is a loan where the lender's rights are limited to the property it pays for. If the loan defaults, the lender can't reach the fund's other assets.
Under new LRBA rules confirmed by the Australian Taxation Office (ATO), an LRBA entered into on or after 10 August 2026 can only be used to buy business real property. That generally means land and buildings used wholly and exclusively in a business, such as an office, warehouse, workshop, clinic or shop. The change doesn't affect LRBAs already in place before that date, refinances of them or contracts exchanged before 10 August 2026.
In practice, this usually means a business owner's SMSF buying the premises the business already trades from. The business then leases the property from the fund at market rent on commercial terms. The real appeal of owning your premises through super is that the rent lands in your own fund, where it helps repay the loan.
Who Is Involved in an LRBA
An LRBA has more moving parts than a standard loan, with three parties to line up:
SMSF Trustee
The SMSF trustee, often a company, runs the fund and is the borrower. The fund pays the deposit and costs, receives the rent and makes the repayments.
Custodian Company
A second company, often called the custodian or holding trustee, holds legal title to the property under a bare trust deed until the loan is repaid. It has no say over the property and simply follows the SMSF trustee's instructions, while the fund keeps the beneficial interest, the rent and any growth. Most setups keep this company separate from the SMSF's own trustee company.
Lender
The lender takes a mortgage over the property and often asks the fund members to sign personal guarantees. A member or related party can lend instead of a bank, but that loan generally needs to follow the ATO's safe harbour terms to avoid extra tax on the fund's income. Either way, the business real property rule still applies.
Steps to Set Up an LRBA
Many costly mistakes come from doing things out of order. A typical sequence is:
Confirm the SMSF's trust deed allows borrowing and that the investment strategy supports the purchase.
Check with your accountant or SMSF auditor that the property will qualify as business real property.
Register the custodian company and prepare the bare trust deed.
Arrange pre-approval for the SMSF loan, including the lender's liquidity requirements.
Sign the contract with the custodian named as purchaser, as trustee for the bare trust.
Pay the deposit from the SMSF bank account, not from personal or business funds.
Settle, with the lease to the business documented at market rent.
The contract step is easy to get wrong. If the SMSF trustee is named instead of the custodian, fixing it later can mean paying stamp duty twice. Treat this sequence as a general guide, as your solicitor will confirm timing for your state.
Costs of Setting Up and Running an LRBA
Costs typically land at three stages, and exact figures depend on your advisers, lender and state, so it helps to ask for quotes upfront:
Setup Costs
Corporate trustee and custodian company registration fees.
Legal fees for the bare trust deed and loan documents.
Lender application, valuation and settlement fees.
Stamp duty on the purchase, which is usually the largest single cost.
Ongoing Costs
Annual SMSF audit, accounting and tax return.
Annual company fees for both companies.
Building insurance, council rates and any land tax.
Exit Costs
Once the loan is repaid, the custodian can transfer legal title to the fund, or the property can stay in the bare trust. Whether stamp duty applies to that transfer depends on your state and how the arrangement was documented, so check with your solicitor before you finalise the loan.
LRBA Rules While the Loan Is in Place
An LRBA must be over a single acquirable asset, which limits what you can do with the property until the loan is cleared:
Repairs and maintenance are allowed, and can be paid for with fund cash or borrowed money.
Improvements can be paid for from fund cash, but not with borrowed money.
Works that turn the property into a different asset are not allowed until the loan is repaid.
Rent must be paid at market rates and on time, even in a slow trading month.
For an LRBA entered into from 10 August 2026, the property must stay business real property for the life of the loan, so a change of use could breach the rules.
These rules are a general guide, and the line between a repair and an improvement can be fine, so run any planned works past your SMSF adviser first.
The fund also needs enough cash to keep up repayments if the tenant leaves or rent drops, which is why many lenders want to see a cash buffer left in the fund after settlement.
If that buffer looks hard to meet, it may be worth comparing this with buying the premises in your business's name instead. A commercial property loan broker can show how lenders would assess each option.
Example of an SMSF Buying Its Premises
Daniel runs a joinery business in Albury from a rented $700,000 workshop. He and his wife have $450,000 in their SMSF, so they look at buying the workshop through the fund.
Their accountant first confirms the workshop qualifies as business real property, since the joinery business uses it wholly and exclusively. Their solicitor then sets up the custodian company and bare trust deed, so the contract can be signed in the custodian's name.
The fund pays a 35% deposit plus costs and keeps a cash buffer, and the lender funds the rest through an LRBA. Daniel's business signs a commercial lease at market rent, which goes towards the loan repayments. The figures here are illustrative only.
Frequently Asked Questions (FAQs)
Can my SMSF buy the premises from me or my business?
Yes, in many cases. Business real property is an exception to the general rule that an SMSF cannot buy assets from its members or related parties, so the fund may be able to buy premises you or your business already own, at market value.
The purchase still needs to make sense as a retirement investment for the fund, and stamp duty and capital gains tax may apply to the sale. Your accountant can confirm how this works for your situation.
How much deposit does an SMSF need for commercial property?
Lenders often lend a lower share of the property value on SMSF commercial loans, so the fund may need a larger deposit, plus enough to cover stamp duty, legal fees and other costs.
Policies vary between lenders, so we compare them to see what suits your fund's balance and contribution levels.
Can an SMSF still borrow to buy residential property?
Not through a new LRBA. For LRBAs entered into on or after 10 August 2026, the ATO limits real property purchases to business real property. An SMSF may still be able to buy residential property with its own money, subject to the usual super rules.
Bottom Line
An LRBA can let your super fund own the premises your business trades from, as long as the property qualifies as business real property and the structure goes in the right order. Before you make an offer, get your solicitor started on the custodian company and bare trust deed, so the contract can go in the right name from day one.
If you're weighing up buying your premises through your SMSF, the Loan Street Finance team are happy to talk through how lenders may look at your fund.
This article is general information only. It does not take into account your objectives, financial situation or needs, and you may wish to speak with a qualified professional, such as an accountant, solicitor or licensed financial adviser, before acting.