What are SMSF Commercial Property Loans for Tradies?

What is an SMSF Commercial Property Loan?

An SMSF commercial property loan lets you borrow money through your self-managed super fund to buy business real property. The loan is structured as a Limited Recourse Borrowing Arrangement, which means if things go wrong, the lender can only claim the property, not the rest of your super. The property sits in a bare trust until the loan is paid off, then transfers into your fund.

For a carpenter looking to buy a workshop, yard or commercial premises to lease back to your business, this is the only way to finance property through super since August last year. Residential investment property can no longer be financed under an LRBA if you entered into the arrangement after 10 August 2026.

Why Carpenters Use SMSF Loans to Buy Commercial Property

The main reason is control. You own the property through your super, you collect the rent from your business, and the rental income is taxed at 15 per cent while the fund is in accumulation phase. If the property is supporting a pension, the income can be tax exempt. When you sell, capital gains tax is either 10 per cent or nil, depending on whether the property is in accumulation or pension phase.

Consider a carpenter who runs a joinery business and rents a workshop for $2,500 a month. Over ten years that rent is gone. If the same carpenter buys the workshop through an SMSF and leases it to the business at market rent, the rent stays inside super, and the property may appreciate. The lease must be at arm's length and the rent must reflect what an independent tenant would pay, but the structure is legal and commonly used.

The other benefit is diversification. Many tradies have most of their wealth tied up in their business and residential property. A commercial property inside super gives exposure to a different asset class while still being connected to the income-producing side of the business.

What Changed in August Last Year

Before 10 August 2026, you could use an LRBA to buy residential investment property through your SMSF. That option is now closed for any new borrowing arrangement entered into after that date. If you want to borrow through your fund now, the property must be business real property, meaning land and buildings used wholly and exclusively in one or more businesses.

That rule applies when you enter into the LRBA and for the entire life of the loan. If the property stops being business real property while the loan is still active, you breach the borrowing rules. A vacant period between tenants is fine if you are actively looking for a new tenant, but if you abandon plans to lease it commercially, the fund is offside.

If you exchanged a binding contract to buy residential property before 10 August 2026, even if settlement happened later, the old rule applies and you can still finance that purchase under an LRBA. But any new arrangement from that date forward must involve business real property.

How the Limited Recourse Borrowing Arrangement Works

The SMSF trustee borrows money from a lender and uses it to buy the property. The property is held in a separate bare trust, with your SMSF as the beneficial owner. The lender's security is limited to the property in the trust. If the loan defaults, the lender cannot touch other assets in your super fund.

The borrowed money can only be used to acquire a single asset or a collection of identical assets that are treated as one. You can include costs like stamp duty, loan establishment fees, and ongoing maintenance or repairs, but you cannot borrow to improve the property. If you want to renovate or extend the building, you need to fund that from the SMSF's own cash or contributions.

Once the loan is repaid, the property transfers from the bare trust into the SMSF. Until that point, the SMSF holds a beneficial interest and the right to acquire legal ownership.

What Lenders Look for in an SMSF Commercial Loan Application

Lenders assess the fund, not you personally, although they will want to see your financials if you are guaranteeing the loan. The main criteria are the fund's balance, the rental income the property will generate, and the loan-to-value ratio.

Most lenders will lend up to 70 per cent of the property value, so you need a 30 per cent deposit from within the fund. Some lenders go to 80 per cent in specific cases, but that is rare and usually requires a personal guarantee. The deposit must come from existing super balances or new contributions, and those contributions are subject to the usual caps.

The lender will also want to see a lease agreement if you are leasing the property to a related party, such as your carpentry business. The lease must be at market rent and properly documented. If the rent is below market, the ATO can treat the shortfall as non-arm's length income and tax it at 45 per cent.

Borrowing capacity is based on the rental income, not your wage or business profit. If the property generates $30,000 a year in rent and the lender applies a serviceability buffer, they will calculate whether that income can cover the loan repayments, property expenses, and fund costs. If the numbers do not stack up, the loan will not be approved, even if your personal income is high.

Deposit Requirements and Contribution Caps

If your SMSF does not have enough cash for the deposit, you can make additional contributions, but those contributions are capped. The concessional cap is $32,500 per year, and the non-concessional cap is $130,000. If your total super balance at 30 June of the previous year was below $1.84 million, you can access the bring-forward rule and contribute up to $390,000 over three years.

If your balance was above the general transfer balance cap of $2.1 million, your non-concessional cap is nil and you cannot make after-tax contributions. That is a real limitation for tradies with large super balances who want to buy property but do not have the liquidity inside the fund.

You can also roll over balances from other super funds into your SMSF to build the deposit, but that takes time and you need to check for exit fees or insurance implications before moving money.

What is Business Real Property for an SMSF Loan

Business real property means land and buildings used wholly and exclusively in a business. A commercial workshop, warehouse, retail shopfront, or industrial yard all qualify. A residential property used as an investment does not, even if it generates rental income.

A property with mixed use can still qualify if the business use is the whole and exclusive use. The ATO has stated that a small dwelling on a large rural property used mainly for primary production can meet the definition if the dwelling is on less than 2 hectares and the property's main use is not domestic. For a typical carpenter buying a suburban workshop or light industrial unit, the property will need to be zoned and used for commercial purposes.

If you lease the property to your own carpentry business, that lease must be genuine and at market rent. The property remains business real property because it is being used in your business, even though you are both the landlord and tenant through different legal structures. The ATO accepts this arrangement as long as the terms are arm's length.

SMSF Loan Interest Rates and Fixed vs Variable

SMSF loan rates are higher than standard home loan rates. At current pricing, variable rates sit around 1 to 1.5 per cent above equivalent residential investment loans. Fixed rate options exist but are less common and usually carry a premium.

The higher rate reflects the risk to the lender. The loan is limited recourse, so if the property value falls and the SMSF cannot service the debt, the lender's recovery is capped at the property value. There is no ability to chase you personally unless you have provided a guarantee.

Some lenders offer fixed rates for three to five years on SMSF commercial loans, but the rate is typically higher than the variable product. For a carpenter with stable rental income from a long-term lease, a variable rate with offset capability can provide more flexibility than locking in a fixed term.

Tax on Rental Income and Capital Gains Inside the SMSF

Rental income earned by the SMSF is taxed at 15 per cent while the fund is in accumulation phase. If the property is supporting a pension and the fund meets the segregated asset rules, the income can be entirely tax exempt. That exemption applies once you retire and start drawing a pension from the fund, provided the pension meets minimum payment standards.

When you sell the property, capital gains tax applies unless the asset is supporting a pension. In accumulation phase, the fund pays 15 per cent on the capital gain, or 10 per cent if the property was held for at least 12 months and the one-third discount applies. In pension phase, capital gains are not taxed.

Division 296 tax applies from 1 July 2026 to members with a total super balance above $3 million. The tax is 15 per cent on earnings related to the balance above that threshold, and an additional 10 per cent on earnings above $10 million. The tax is assessed to you personally, not the fund, but can generally be paid from your super. Limited recourse borrowing amounts are not included in your total super balance for Division 296 purposes, which can make borrowing more attractive for members approaching or above the threshold.

Can You Refinance an Existing SMSF Loan

Refinancing is treated as entering into a new LRBA. If you refinanced before 10 August 2026, the old rules apply. If you refinance now, the property must be business real property when the new loan is entered into, even if the original loan was taken out before the rule change.

The ATO considers a refinance to be a new loan contract, whether with the same lender or a new one. If the refinance involves a significant change to the terms or a new holding trust, it is definitely a new arrangement and must comply with current law.

For carpenters who took out an SMSF loan to buy residential property before August last year, you can maintain or refinance that loan without issue, because the rule change does not apply retrospectively to arrangements entered into before 10 August 2026. But if you want to refinance an existing commercial loan now, the property must still meet the business real property definition at the time of refinancing and throughout the new loan term.

Comparing SMSF Lenders and What a Mortgage Broker Can Do

Not all lenders offer SMSF loans, and those that do have different LVR limits, rate structures, and application processes. Some lenders only offer SMSF loans for commercial property, others will still finance residential property acquired under pre-August 2026 contracts, and a few specialize in related party lending where the loan is provided by a family member or associated entity.

An SMSF mortgage broker who understands the rules can compare SMSF lenders and match your fund's position to the right product. They can also structure the loan correctly from the start so that the bare trust, the LRBA terms, and the lease agreement all meet regulatory requirements.

For tradies, working with a broker who understands both SMSF lending and self-employed income is important. Your income structure as a carpenter, whether you operate through a company, trust, or sole trader setup, affects how lenders assess your capacity to guarantee the loan if that is required. A broker who works with tradies regularly will know which lenders accept your income type and what documentation they need.

Who Should Consider an SMSF Commercial Property Loan

This structure suits carpenters who have built a decent super balance, run an established business, and want to own the commercial property they operate from. It is not for someone just starting out or with a low super balance, because the deposit requirement and loan costs are significant.

You also need to be comfortable with the compliance burden. An SMSF requires an annual audit, a tax return, and ongoing administration. If the property is leased to a related party, the lease must be reviewed regularly to ensure the rent stays at market rates. If the property is vacant for an extended period or you decide to use it for non-commercial purposes, you breach the rules.

For a carpenter in their 40s or 50s with $200,000 or more in super, a commercial workshop purchase can make sense if the property stacks up financially and the business has a long-term need for the premises. For younger tradies or those with limited super, building the balance through concessional contributions and focusing on home loans for carpenters or home loans for tradies might be a better path.

Call one of our team or book an appointment at a time that works for you. We work with SMSF lenders who understand tradie businesses and can structure the loan properly from the start.

Frequently Asked Questions