The announcement on 23 June that the federal government has struck a deal with the Greens to ban self-managed super funds (SMSFs) from using limited recourse borrowing arrangements (LRBAs) to purchase residential property has created a wave of confusion in the market.
The ban applies to residential property LRBAs only. Commercial property borrowing inside an SMSF is explicitly unaffected – and that distinction matters more than ever, because it is being widely misunderstood.
If you are a Melbourne investor holding commercial assets through your fund, or a business owner who has been considering purchasing your own premises through your SMSF, the door remains open. Your ability to borrow inside your SMSF for commercial property has not changed.
While this legislation has passed Parliament, royal assent has not been confirmed at the time of writing. The effective date of approximately mid-August 2026 is subject to finalisation.
This article is general information only and does not constitute financial, legal or tax advice. SMSF structures involve complex legal and tax considerations. We recommend seeking independent advice from a qualified SMSF specialist, financial planner and accountant before acting on anything in this article.
What exactly changed, and what did not?
Under the deal struck to pass the Budget's tax legislation through the Senate, SMSFs will be prohibited from entering into new limited recourse borrowing arrangements to acquire residential property. The ban takes effect 45 days after royal assent, which is expected around mid-August 2026.
Existing residential LRBAs are not affected. If your fund already holds residential property under a borrowing arrangement, that position is preserved.
Commercial property LRBAs are also explicitly excluded from the ban. The legislation draws a clear line between residential and commercial. SMSFs can still borrow to purchase commercial property like retail shops, industrial sheds, office suites, medical centres and childcare facilities through an LRBA structure in the same way they always could.
The lease-back arrangement also remains fully intact. A business owner whose SMSF purchases commercial premises can still lease those premises back to their own business at market rent. This is a useful strategy available to self-employed Australians and small business owners, and it has not been touched.
Why commercial SMSF has strengthened
To understand why the commercial SMSF structure has strengthened, it helps to map the tax positions side by side.
First, let’s look at buying property inside super. Borrowing money to buy a residential property inside an SMSF is now off the table. From mid-August 2026, new LRBAs for residential assets are banned.
Commercial property investment inside an SMSF remains fully available. Rental income is taxed at 15% in the accumulation phase – well below the 47% marginal rate most high-income individual investors face outside super. On disposal after 12 months, the effective capital gains tax (CGT) rate is 10%. In the pension phase, both the rental income and any capital gain can be entirely tax-free, subject to the transfer balance cap rules.
Now let’s look outside super, where the picture has also shifted following the Budget. An established residential investment property purchased after 12 May 2026 will lose the current negative gearing rules from 1 July 2027, meaning rental losses can no longer be offset against wages. The 50% CGT discount is also gone, replaced by an indexation model with a 30% minimum tax rate on real gains.
Commercial property outside super is untouched by those changes – the existing negative gearing rules and 50% CGT discount both remain – but it does not carry the tax advantages that holding inside super provides.
So for investors weighing their options, the facts are:
- The option to borrow money to invest in residential inside super is no longer available for new purchases from mid-August 2026.
- Residential outside super has become less tax-efficient, especially for high-income buyers.
- Commercial inside super sits in a stronger comparative position than it has for years.
Business owners may be the biggest winners here
Many business owners are incorrectly assuming the residential ban catches them, too. It doesn’t. And in fact, you could come out of these changes better than many other property owners. Here’s why.
Say your SMSF purchases the commercial premises your business operates from, using a combination of the fund's existing assets and an LRBA. Your business then leases the premises from the fund at market rent (still allowed – this has not changed). The rental income flows into your super, taxed at 15% in the accumulation phase. Over time, the fund builds equity in a commercial asset while your business effectively pays down the loan through its rent obligations.
This approach often suits self-employed borrowers and business owners, where owning the premises is both practical and strategically sensible. Instead of paying rent to a landlord, your business pays rent into your own super fund. The asset value grows inside your fund, and under the LRBA, it is protected from creditors in most circumstances. This all means your retirement savings grow alongside your business, rather than separately from it.
Getting the timing right
Beyond the structural opportunity, there are current market dynamics worth considering.
Capital that was previously directed at residential property inside SMSFs will need to find somewhere else to go. Some of it will leave super entirely. Some will move into shares or other asset classes. But a meaningful portion is likely to be redirected towards commercial property – an asset class that retains full LRBA access, favourable tax treatment inside super and, now, a comparative advantage over residential investment both inside and outside the fund.
Commercial property has always had less available stock than residential, and Melbourne's industrial market illustrates the point. According to Knight Frank's Q1 2026 State of the Market report, Melbourne industrial vacancy sits at 4.5%. Although this was higher than the 10-year average of 2.6%, prime net face rents still grew 5.5% annually to average $153 per sqm, and take-up totalled 350,000 sqm across the quarter.
Meanwhile, a significant share of the supply pipeline has been deferred amid feasibility and construction cost pressures. This means that demand is absorbing stock faster than new supply is coming to market.
If capital previously directed at residential SMSF purchases redirects into commercial, it will be competing for assets in a market where available supply is already structurally limited.
Funds that have been weighing up commercial property as a future allocation now have a more pressing reason to act, and less time before sentiment shifts.
Of course, this does not mean rushing into a purchase – buying the wrong asset in the wrong location to get ahead of a trend. It does mean that investors and business owners who have been sitting on this decision have less reason to wait.
How commercial SMSF lending works
Commercial property loans inside an SMSF differ from both residential SMSF lending and standard commercial investment loans.
Loan-to-value ratios (LVRs) are typically lower than residential investment loans – commonly 65 to 70% for commercial assets, depending on the asset type, tenant quality and lease structure. That means a higher deposit or equity contribution from existing fund assets is generally required.
Not every lender offers commercial SMSF lending. The approval process involves assessment of the fund's trust deed, investment strategy, existing assets and the compliance of the proposed structure under the ATO's LRBA rules. Getting this right from the outset avoids delays and compliance risk down the track.
Loan structure is important too. Interest-only periods, fixed versus variable options and the implications for the fund's liquidity all need to be considered in the context of the fund's broader investment strategy. A structure that suits a fund with a single commercial asset looks different to one that suits a fund planning to hold multiple assets over time.
At AXTON Finance, we work with a panel of more than 30 lenders across both residential and commercial lending, and our team has experience across commercial SMSF structures for both investors and business owner-occupiers. Not every lender is active in this space, and knowing which ones are and which have the appetite for your specific asset and fund profile saves time and avoids unnecessary credit inquiries.
Where does this leave you?
If you hold commercial property in your SMSF, or you have been considering this strategy, the announcement on 23 June has not closed anything for you. It has, if anything, made the case stronger by removing a competing use of LRBA capacity and sharpening the comparative tax advantage of holding commercial assets inside super.
If you were considering an SMSF residential purchase and are now reassessing where to direct that capital, commercial property is worth a serious look – with the right professional team and an understanding of the risks around vacancy, liquidity and tenant quality that commercial investment carries.
This article is general information only and does not constitute financial, legal or tax advice. SMSF structures involve complex legal and tax considerations. We recommend seeking independent advice from a qualified SMSF specialist, financial planner and accountant before acting on anything in this article.
How AXTON Finance can help
Business owners considering buying their commercial premises through an SMSF: get in touch with the team at AXTON Finance to discuss the lending side before the market moves.
Existing SMSF holders reassessing strategy after the residential ban: book a loan health check with our team to understand your options.
