Top tips to fund an office with your super in Essendon North

Can you still use your SMSF to buy an office building?

Yes, you can still purchase an office building through your Self-Managed Super Fund using a Limited Recourse Borrowing Arrangement. The property must qualify as business real property when you enter the loan and remain in that category for the entire life of the arrangement. Rules introduced in August 2026 now limit new SMSF property loans to business real property only, which includes commercial office buildings leased to tenants or owner-occupied by a related business.

Consider a business owner in Essendon North who operates a professional services firm and wants to purchase a commercial unit in the Keilor Road commercial precinct. If the SMSF enters a borrowing arrangement to acquire that property for use in a business, whether leased to the member's company or to an unrelated tenant, the transaction remains compliant under current law. The property cannot be residential investment property or a holiday let, even if those assets might produce rental income.

The change to the borrowing rules does not affect SMSF loans entered into before 10 August 2026, including refinancing of those loans. It also does not stop an SMSF from purchasing any type of property with cash, only what can be financed under an LRBA.

How a Limited Recourse Borrowing Arrangement is structured

An LRBA involves your SMSF trustee obtaining a loan to purchase an asset held in a separate bare trust. The SMSF acquires a beneficial interest in the property and gains legal ownership once the loan is fully repaid. The lender's recourse in the event of default is limited to the asset itself and does not extend to other assets held by your super fund.

For an office building purchase in Essendon North, the structure typically involves the SMSF as borrower, a holding trustee (often a corporate trustee established solely for this purpose) that holds legal title to the property, and a lender that accepts SMSF lending. The SMSF makes loan repayments from its cash flow, which may include employer and member contributions, rental income from the property, and returns from other fund investments.

The property must be a single acquirable asset. You cannot bundle multiple office suites on separate titles under one LRBA unless they meet strict conditions for being treated as a single asset. Each property title generally requires a separate borrowing arrangement.

Deposit and borrowing capacity for commercial SMSF property

Most lenders offering SMSF commercial loans require a deposit of at least 30 to 35 per cent of the purchase price, resulting in a loan-to-value ratio (LVR) of 65 to 70 per cent. Some lenders may lend up to 80 per cent LVR in limited circumstances, depending on the property type, location, lease quality, and the fund's financial position.

Borrowing capacity depends on the rental income the property can generate, contributions flowing into the fund, and the fund's existing assets. Lenders assess whether the fund can service the loan repayments and meet its other obligations, such as minimum pension payments if a member is in pension phase. Unlike residential loan refinance applications, lenders do not assess personal income unless a member or related party provides a guarantee, which is permitted under the limited recourse structure.

In a scenario where an SMSF with a balance of $850,000 seeks to purchase an office building, the fund would need a deposit of around $300,000 from its existing balance or additional contributions, plus funds for stamp duty, legal costs, and loan establishment fees. The rental yield on the property and the members' ongoing contribution capacity determine whether the loan is serviceable.

Tax treatment of rental income and capital gains

Rental income received by an SMSF is taxed at 15 per cent while the fund is in accumulation phase. Interest on the loan is deductible against that income, along with property outgoings such as rates, insurance, repairs, and depreciation. If the fund is paying a pension and the asset supports that pension, rental income may be exempt from tax under the exempt current pension income provisions.

Capital gains tax applies when the property is sold. If the SMSF has owned the property for at least 12 months, it receives a one-third discount on the capital gain, resulting in an effective tax rate of 10 per cent on the discounted gain during accumulation phase. If the property is a segregated current pension asset at the time of sale, the capital gain may be fully exempt.

From 1 July 2026, Division 296 tax applies to members with a total super balance above $3 million, and an additional layer applies above $10 million. This tax is assessed on the individual member, not the fund, and is calculated on a proportion of total super earnings. Importantly, outstanding LRBA amounts are excluded from the total super balance calculation for Division 296 purposes, which can reduce the exposure to this tax compared to an asset purchased outright with cash.

What you need before applying for a commercial SMSF loan

Lenders require evidence that your SMSF is compliant and has the financial capacity to service the loan. You will need a current trust deed, a compliant investment strategy that permits borrowing and commercial property investment, recent fund financials and tax returns, and a rental appraisal or lease agreement for the property. If the property will be leased to a related party of the SMSF, such as a company controlled by a member, the lease must be at market rent and on arm's length terms.

The SMSF must meet the sole purpose test, meaning the property is acquired to provide retirement benefits and not for any other purpose. An office building leased at market rent to a related party can meet this test, but the arrangement must be documented and maintained correctly. If the property is used by a related party for non-commercial purposes or at below-market rent, the fund risks breaching superannuation law.

You also need a bare trust deed to hold the property during the term of the loan. Many lenders provide a template deed as part of the loan documentation, but it must be reviewed by a solicitor to confirm it meets regulatory requirements.

What happens if the property stops being business real property

If the office building ceases to be used wholly and exclusively in a business during the life of the LRBA, the arrangement breaches the borrowing rules and compliance action may apply. A property does not immediately lose its business real property status if you are searching for a new tenant, but it does if you abandon plans to lease it or change its use to non-business purposes.

For an office in Essendon North near the intersection of Keilor Road and Buckley Street, if the tenant vacates and the SMSF trustee markets the property for lease, the status is maintained. If the trustee instead decides to convert the space for personal storage or another non-business use, the property no longer qualifies.

Maintaining business real property status is a continuing obligation. If the property will be vacant for an extended period or the nature of its use may change, seek advice before the change occurs.

Refinancing an existing SMSF property loan

You can refinance an LRBA entered into before 10 August 2026 without the new business real property restriction applying, even if the original loan financed a residential investment property. The refinance must relate to the same asset and the SMSF must not take temporary legal title during the transfer between holding trusts.

For an LRBA entered into on or after 10 August 2026, such as a loan to purchase an office building, any future refinancing must occur while the property still meets the business real property definition. Significant changes to loan terms may result in the creation of a new borrowing arrangement rather than a continuation of the existing one, and the new arrangement must comply with the law in force at that time.

When comparing SMSF lenders, consider both the interest rate and the flexibility of loan terms, including the ability to make additional repayments, redraw arrangements, and whether offset accounts are available. Genuine offset accounts offered by an authorised deposit-taking institution are allowed, but offset facilities from non-bank lenders may not meet regulatory requirements.

How a mortgage broker assists with SMSF office purchases

An SMSF mortgage broker with experience in commercial property can identify lenders willing to finance office buildings in Essendon North, compare loan terms and interest rates, and coordinate the application process with your accountant, solicitor, and SMSF administrator. Not all lenders accept SMSF loans, and those that do have varying policies on property types, LVR limits, and lease requirements.

For an office building purchase, the broker will assess whether the property and fund meet lender criteria before submitting an application. This includes reviewing the lease term, tenant quality, property condition, and the fund's ability to service the loan. The broker may also assist with structuring additional contributions or pension drawdowns to optimise cash flow during the loan term.

Call one of our team or book an appointment at a time that works for you to discuss your SMSF property plans and confirm whether your fund and the property you are considering meet the current lending and regulatory requirements.

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