The rules around self-managed superannuation funds (SMSFs) and property just changed significantly. From 10 August 2026, SMSFs can no longer use limited recourse borrowing arrangements (LRBAs) to buy residential property. The residential door is closing, but commercial property has not been touched by the new rules. SMSFs can still borrow to acquire business real property.

For SMSF trustees weighing up their options, now is a good time to understand how residential and commercial property compare as an investment class.

Can your SMSF still borrow to buy property?

From 10 August 2026, LRBAs for residential property inside an SMSF are no longer available for new purchases. Existing arrangements are grandfathered, and refinancing of pre-commencement loans is still permitted, but new residential deals are off the table.

Commercial property is different. An SMSF can still enter an LRBA to acquire commercial property that meets the business real property test, so the ability to use debt inside super stays intact for that asset class. The legal test is business real property, not simply the word "commercial". Most commercial premises used wholly in a business will qualify, but some will not, and a small number of residential-style properties can. This is one to check property by property.

Commercial vs residential rental yields

Commercial property typically generates a higher rental yield than residential. PropTrack's Commercial Yields data for March 2026 shows the gap clearly across the major markets.

Across the same period, gross residential yields sat well below commercial in every capital, according to Cotality. Even commercial's weakest performer, industrial property in Sydney at 4.2%, came in more than a full percentage point above residential.

Inside an SMSF, that gap compounds. Rental income is taxed at just 15%, rather than an investor's marginal rate, which can reach 45% before the Medicare levy. A higher-yielding commercial asset makes that tax advantage work harder. In pension phase the rate drops to zero, so the full rental income stays in the fund.

Leasing commercial property back to your own business

One advantage commercial property holds for business owners is the ability to lease it back to a related party, such as a business owned by a fund member. This is permitted under the ATO's rules, provided the lease is on arm's-length commercial terms.

It can work well on both sides. The business pays market rent straight into super, building retirement savings, while the property grows inside a concessionally taxed structure. Residential property offers no equivalent flexibility.

Who pays the outgoings, you or the tenant?

A practical difference that surprises a lot of investors is how outgoings are handled. With residential property, most holding costs (council rates, insurance, maintenance) fall to the landlord. With commercial property, leases commonly require the tenant to cover these directly, which lowers the net cost of ownership for the fund.

A lease that passes outgoings to the tenant gives you a cleaner, more predictable income stream. That matters for an SMSF, because there is no salary inside the fund to absorb an unexpected bill. Any shortfall has to be met through member contributions, which are capped.

Deposits, LVRs and lender appetite

Commercial property, inside an SMSF or not, can be more complex. Lenders look closely at the quality of the tenant, the length of the lease, the location and the likely resale market. As a broad rule, loan-to-value ratios on commercial loans sit lower than on residential. But deposit size is where expectations and reality tend to part ways.

Many people assume a commercial purchase needs a 30 to 50% deposit. Sometimes that holds, particularly for specialised security types or properties in regional or remote areas, where lenders take a more conservative view. For good quality commercial property, though, some lenders will consider a deposit as low as 20%, which puts the borrowing requirement on par with a standard residential purchase.

The pool of lenders offering this kind of finance is smaller, which can narrow your options. That is exactly why the broker you work with matters. Someone who understands both the SMSF lending framework and the commercial property market is essential, because the lender panel, structuring and requirements are materially different from any other loan.

Common questions about SMSF property

When does the SMSF residential borrowing ban start?
From 10 August 2026. New limited recourse borrowing arrangements for residential property inside an SMSF are no longer available from that date. It is the contract date that counts, not settlement, and existing arrangements are grandfathered.

Can an SMSF still borrow to buy commercial property?
Yes, provided the property meets the business real property test. An SMSF can still use an LRBA to acquire business real property, so leveraged commercial purchases remain on the table.

What is business real property?
Broadly, it is property used wholly and exclusively in one or more businesses. Most standard commercial premises qualify, some do not, and the test is applied property by property, so it is worth confirming before you commit.

How much deposit do I need for an SMSF commercial loan?
It varies. Specialised or regional properties can require 30 to 50%. For good quality commercial property, some lenders will consider around 20%, similar to a standard residential deposit.

This article is general information only. It does not take into account your personal objectives, financial situation or needs, and it is not financial, tax or legal advice. Speak to your accountant or licensed adviser about your own situation before acting.

Thinking about commercial property in your SMSF? Get in touch with the team at Divitis Finance to talk through your options.

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