Pros vs Cons: Using a Self-Managed Super Fund (SMSF) to purchase commercial property

According to everyone’s favourite government institution, The Australian Tax Office, as of 30 June 2022, Australian self-managed superannuation funds (SMSFs) held over $869 billion in assets, up 15% from the previous year and 25% over five years. 

An SMSF is a private superannuation fund where the members are also the trustees, providing them with control over the investment decisions made within the fund. 

This growing, yet highly regulated and specialised industry is dominated by savvy individuals and, more specifically, existing business owners considering SMSFs as a vehicle to save and make money via the purchase (and sometimes potential lease back) of commercial property.

Like all business decisions, the use of a self-managed super fund (SMSF) to invest in commercial property requires measured analysis based on your individual situation. Below is a quick guide to potential advantages and disadvantages:

What are the ADVANTAGES of SMSF commercial property investment?

    1. Control and Flexibility: With an SMSF, you have greater control over your investment decisions. You can choose the commercial property you want to invest in, negotiate the terms of the purchase, and manage the property according to your investment strategy. This flexibility allows you to tailor your investment to suit your specific goals and risk appetite.
    2. Diversification: Investing in commercial property through an SMSF can provide diversification within your superannuation portfolio. Commercial property can offer a different risk and return profile compared to traditional investment options like stocks and bonds.
    3. Tax-effective leasing: Investing in commercial property allows you to lease it back to yourself. For business owners looking to purchase an office or factory for their company to use, this is can be a beneficial move which allows the business to pay the lease money directly to your SMSF. This income grows your fund balance, while your business can claim this lease money as a tax deduction, too.
    4. Potential Tax Benefits: SMSFs enjoy certain tax benefits. For example, rental income from the commercial property held in the SMSF is generally taxed at a concessional rate during the accumulation phase and tax-free if you’re over the age of 60 and no longer working. Additionally, if the property is held for more than 12 months, any capital gains upon sale may be eligible for a discounted tax rate.
    5. Leverage: It is possible to use borrowing arrangements, such as a limited recourse borrowing arrangement (LRBA), to purchase commercial property within an SMSF. This can enable you to acquire a higher-value property than if you were solely relying on your superannuation contributions. However, it’s important to note that borrowing within an SMSF comes with very strict rules and requirements.
    6. Potential for Capital Appreciation: Commercial property has the potential to generate long-term capital appreciation. Depending on market conditions and the quality of the property, its value may increase over time. This growth can enhance the overall returns and potentially boost your retirement savings.

While there are some big benefits of SMSF property investment, there are also some drawbacks to be aware of.

What are the DISADVANTAGES associated with SMSF commercial property investment?

  1. Complexity and Compliance: Operating an SMSF requires a significant level of knowledge, time, and effort to navigate complex legal and compliance requirements. Trustees have numerous responsibilities, including record-keeping, reporting, auditing, and meeting compliance standards set by the Australian Taxation Office (ATO). Non-compliance can result in penalties and loss of tax concessions.
  2. Concentrated Risk/Limited Investment Diversification: By investing a substantial portion of your superannuation in a business property, you may be heavily reliant on the success and performance of that specific property. This lack of diversification can expose your retirement savings to higher risk levels.
  3. Liquidity Constraints: Business properties tend to be illiquid assets, meaning they cannot be easily converted to cash. This lack of liquidity may limit your ability to access your funds quickly in case of an emergency or if you require additional capital for other investment opportunities. Your experienced SMSF Finance Broker will be in the pest position to discuss any limitations.
  4. Limited Capital Growth: The potential for capital growth in commercial properties is uncertain and can be influenced by various factors, such as changes in market conditions, tenant demand, and economic factors. It’s important to conduct thorough research and due diligence to assess the property’s growth potential.
  5. Borrowing Restrictions: If you plan to finance the property purchase through borrowing, SMSFs face additional borrowing restrictions compared to other investment structures. For example, a limited recourse borrowing arrangement (LRBA) must be used, and the property must meet specific criteria. Ask your Finance Broker for details specific to your situation.
  6. Costs and Fees: Establishing and managing an SMSF involves various costs, such as accounting, auditing, legal fees, and compliance costs. These expenses can be substantial and may erode the returns generated by the business property.
  7. Finance Availability: Borrowing for SMSF doesn’t need to be difficult, you just need someone in your corner who knows the SMSF lending market, specifically which banks are offering what? Each bank or lender has different lending criteria (for example some may only lend for owner occupier purposes, others will lend to investors).

It’s crucial to consult with a qualified financial advisor or SMSF specialist who can provide personalised advice based on your specific circumstances and goals. They can help you weigh the pros and cons, assess the risks involved, and determine whether an SMSF and business property investment align with your retirement objectives. If you need a recommendation for proven advisors in the field, please reach out.

Of course, for more specific information on SMSF borrowing options for you or your business in today’s marketplace, please get in touch.


THE FINEPRINT: The information provided on this site is on the understanding that it is for illustrative and discussion purposes only. While all care and attention are taken in its preparation any party seeking to rely on its content or otherwise should make their own enquiries and research to ensure its relevance to your specific personal and business requirements and circumstances.

Green Finance Group Pty Ltd ACN 145 035 221 is authorised under LMG Broker Services Pty Ltd ACN 632 405 504 Australian Credit Licence 517192.

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"A step-by-step guide for using your Self-Managed Super Fund (SMSF) to purchase commercial property"

Meet the Author

“Over my decade long career in finance I have developed an in depth understanding of the debt landscape from banks to private credit funds.”

James Kelder

BCom – Finance (UQ)

Finance Consultant
  • Commercial Finance, Equipment Finance, Home Finance

Fortitude Valley, Brisbane

One of Australia's most in-demand commercial finance brokers and awardee of Best Finance Broker 2024 (Better Business Awards), James specialises in commercial property investment and development finance.

Prior to joining the Green Team, I occupied management roles at Australia's largest commercial bank – National Australia Bank (NAB). I have broad experience in business, corporate, equipment and property debt and thrive on complex transactions.