Simple hacks to fund industrial property with super

Can an SMSF Borrow to Purchase Industrial Property?

An SMSF can borrow to purchase industrial property through a Limited Recourse Borrowing Arrangement, provided the property qualifies as business real property under section 66 of the SIS Act. The property must be used wholly and exclusively in one or more businesses at the time of acquisition, and the business using the property does not need to be carried on by the SMSF itself.

Consider a fund purchasing a 600-square-metre industrial unit in the Gnangara industrial precinct north of Aveley. The property is tenanted by a logistics company operating a warehousing and distribution business. The property satisfies the business real property definition because its actual use is wholly and exclusively for business purposes. The SMSF trustee borrows 70 percent of the acquisition price under a Commercial SMSF property loan, holding the property in a bare trust arrangement until the loan is repaid. Rental income from the tenant flows to the SMSF and supports the loan repayments, while the SMSF pays tax at 15 percent on that income during the accumulation phase.

The changes to SMSF borrowing rules that commenced on 10 August 2026 do not affect commercial property acquisitions. Those changes restrict new LRBAs for residential real property but leave industrial, commercial, and other business real property unaffected. The compliance conditions that applied before 10 August 2026 remain in place for commercial property, including the requirement that borrowed funds must be used to acquire a single asset, the asset must be held in a separate holding trust, and recourse of the lender is limited to the asset under the arrangement.

Deposit Requirements and Loan LVR for Industrial Property

Most lenders offering SMSF commercial loans require a deposit of at least 30 to 40 percent of the purchase price. Maximum loan LVR typically sits between 60 and 70 percent, although some lenders may extend to 75 percent in limited circumstances depending on the property location, tenant strength, and lease term. The deposit must come from existing SMSF funds or from member contributions that comply with the concessional and non-concessional contributions caps.

Where an SMSF has insufficient funds for the deposit, members may make additional contributions subject to the caps in place from 1 July 2026. The concessional contributions cap is $32,500 per annum, while the non-concessional contributions cap is $130,000 per annum. The bring-forward arrangement allows eligible members to contribute up to $390,000 in non-concessional contributions over three years, provided their total superannuation balance on 30 June of the previous year was below $1.84 million. Industrial properties in Aveley and surrounding areas such as Brabham and Dayton are often located within or near established industrial estates, which can influence lender appetite and LVR settings.

What Qualifies as Business Real Property?

Business real property is defined as land and buildings used wholly and exclusively in one or more businesses. Whether a property qualifies depends on its actual use at the time of acquisition, not on how the property is marketed or zoned. A property advertised as commercial does not automatically satisfy the definition. The ATO's guidance in SMSFR 2009/1 sets out detailed principles and examples.

In a scenario where an SMSF is considering a property with both warehouse space and a small attached office, the property will generally qualify provided both components are used wholly and exclusively for business purposes. A dwelling or residence on the same title will cause the property to fail the wholly and exclusively test unless the specific concession for primary production property applies. That concession allows a dwelling occupying no more than 2 hectares on primary production property to be disregarded, but the concession does not extend to industrial or other commercial property types. Mixed-use properties require careful assessment and advice from a licensed SMSF specialist before acquisition.

How Limited Recourse Borrowing Arrangements Operate

Under a Limited Recourse Borrowing Arrangement, the SMSF borrows funds to acquire the property, which is then held in a separate bare trust. The SMSF holds a beneficial interest in the property and acquires legal ownership once the loan is repaid. If the SMSF defaults on the loan, the lender's recourse is limited to the asset held in the trust and does not extend to other SMSF assets. Investment returns from the property, including rental income, flow to the SMSF.

The holding trust must be structured so that the SMSF trustee has a beneficial interest in the asset and the right to acquire legal ownership after making one or more payments. A discretionary trust cannot be used as a holding trust. The bare trust arrangement is a legal requirement under sections 67A and 67B of the SIS Act, and failure to comply can result in the borrowing being treated as a prohibited loan.

SMSF Rental Income Tax and Capital Gains Tax

A complying SMSF is taxed at 15 percent on its assessable income, including rental income from an industrial property. Where the property is held in accumulation phase, capital gains are also taxed at 15 percent, with a one-third CGT discount available where the property has been held for at least 12 months. This produces a maximum effective rate of 10 percent on the discounted gain, although the actual tax liability depends on the property's adjusted cost base, acquisition and selling costs, capital improvements, and the fund's overall tax position.

Where the property supports a retirement-phase income stream, a capital gain on disposal may be fully or partially exempt under the exempt current pension income rules. The exemption depends on whether the fund's assets are segregated as current pension assets throughout the income year, whether the fund uses the proportionate method, and whether minimum pension payment requirements have been satisfied. Where an SMSF has both accumulation and pension interests, the ECPI exemption will be partial. The outcome is specific to the fund's circumstances and requires careful calculation.

Refinancing an Existing SMSF Commercial Loan

SMSF trustees can refinance an existing Commercial SMSF property loan to access a lower variable rate or to move from a variable to an SMSF fixed rate. The refinanced loan must relate to the same single acquirable asset and maintain the limited recourse character of the original arrangement. Refinancing of commercial LRBA arrangements is not affected by the 2026 changes to residential LRBAs.

The refinanced loan must meet arm's length terms consistent with the ATO's safe harbour interest rates published under Practical Compliance Guideline PCG 2016/5. Where the loan does not meet arm's length terms, income from the arrangement may be assessed as non-arm's length income and taxed at 45 percent. The ATO updates safe harbour interest rates annually, and they apply to both real property and listed securities. A related party may provide a personal guarantee to the lender, but their recourse must be limited to the asset under the arrangement and not extend to any other SMSF assets.

Compliance with the Sole Purpose Test

All SMSF investments, including industrial property held under an LRBA, must be maintained solely to provide retirement benefits to members. The sole purpose test under section 62 of the SIS Act applies at all times, and any decision that gives members or related parties a present-day benefit may contravene this requirement. Where an industrial property is leased to a related party of a fund member, the lease must be made on arm's length terms at market value. Business real property leased between the fund and a related party is excluded from the in-house asset rules, provided the lease is genuinely commercial.

Industrial properties in the Aveley area are commonly leased to unrelated third-party tenants, which simplifies compliance with both the sole purpose test and the in-house asset rules. Where a member or related party operates a business and wishes to lease the property from the SMSF, independent valuation and formal lease documentation are required to demonstrate arm's length terms.

How to Compare SMSF Lenders and Loan Structures

When selecting an SMSF mortgage broker or lender, focus on loan interest rate, loan LVR, establishment fees, and whether the lender offers both variable rate and SMSF fixed rate options. Some lenders specialise in commercial property and offer more favourable terms for industrial properties with strong tenant covenants and longer lease terms. Others may restrict lending based on property location, zoning, or building condition.

Working with an SMSF mortgage broker who understands the commercial lending market and the requirements of different lenders can reduce the time required to compare SMSF lenders and structure the loan correctly. A broker can also assist with ensuring the bare trust documentation, loan agreement, and security arrangements comply with the requirements of sections 67A and 67B of the SIS Act. This is particularly relevant where the SMSF trustee is unfamiliar with the LRBA process or where the property is being acquired from a related party who is not a member of the fund.

Call one of our team or book an appointment at a time that works for you to discuss your SMSF loan application and borrowing capacity for industrial property in Aveley and surrounding areas.

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