Simple hacks to fund industrial property in your SMSF

Industrial property remains one of the most accessible commercial property options for SMSFs using borrowed funds.

Unlike residential property, which was banned from new SMSF borrowing arrangements in mid-2026, commercial and industrial assets can still be purchased through a Limited Recourse Borrowing Arrangement. The structure suits young families building long-term wealth outside the traditional residential market, particularly when rental yields on warehouses and light industrial units outpace what apartments or houses typically deliver. The decision to borrow within your super comes down to whether the tax advantages, rental stability, and capital growth potential justify the compliance work and the limitations on how you can use the property.

Why industrial property suits SMSF borrowing structures

Industrial property generates consistent rental income from business tenants who typically sign longer leases than residential renters. Rental income inside your SMSF is taxed at 15% during the accumulation phase, and capital gains on assets held longer than 12 months are taxed at an effective rate of 10%. Once the fund moves into pension phase, both rental income and capital gains become tax-free.

Consider a couple in their mid-30s with two young children and a combined super balance approaching $400,000. They want to add a tangible asset to their fund but cannot borrow for residential property under the new rules. A small industrial unit in an outer metropolitan area, leased to a logistics business on a five-year lease, offers predictable cash flow and the potential for capital growth as demand for warehouse space continues to rise. The property is held in a bare trust, the loan is limited recourse, and the asset exists solely to generate retirement benefits for the fund members.

How a Limited Recourse Borrowing Arrangement works for commercial property

A Limited Recourse Borrowing Arrangement allows your SMSF to borrow money to purchase a single asset, which is held in a separate bare trust until the loan is repaid. The lender's security is limited to the property itself, meaning they cannot claim other assets in your fund if the loan defaults.

The SMSF trustee enters into the loan, and the property is registered in the name of a bare trustee, often a custodian company. Your fund makes loan repayments from contributions, rental income, or existing cash reserves. Once the loan is fully repaid, the property transfers into the SMSF's name. Each property requires its own loan and its own bare trust, so if you want to purchase two industrial units, you need two separate borrowing arrangements.

Lenders offering SMSF loans typically require a deposit of 20% to 35%, depending on the asset type and location. For industrial property, LVRs generally sit between 65% and 75%. Non-bank and specialist lenders have become more flexible in recent years, with some offering LVRs up to 80% for well-located commercial assets.

Your fund must also demonstrate sufficient liquidity post-settlement. Lenders now expect a cash buffer of 5% to 10% of the asset value to cover unexpected expenses such as repairs, vacancy periods, or interest rate increases. Without that buffer, the loan application may be declined or approved at a lower LVR.

Sole purpose test and how it limits property use

The property must meet the sole purpose test, meaning it exists purely to provide retirement benefits for fund members. You cannot use the property for personal purposes, lease it to yourself, or allow family members to operate a business from it unless the arrangement complies with the strict in-house asset rules.

If you lease the property to a related party, such as a business you own or control, the asset may be classified as an in-house asset. SMSFs are restricted from holding more than 5% of their total assets in in-house investments. Breaching this rule can result in penalties, and in severe cases, disqualification of the fund.

You also cannot use the borrowed funds to make structural improvements to the property while the loan is active. Repairs and maintenance are allowed, but adding a mezzanine floor, extending the building, or subdividing the lot would breach the single acquirable asset rule. If you want to make structural changes, you need to repay the loan first or fund the improvements separately without using borrowed money.

Related-party leases and the in-house asset cap

If your SMSF owns an industrial unit and you lease it to your own business, the property becomes an in-house asset unless it qualifies for an exemption. Business real property used wholly and exclusively in a business is exempt from the in-house asset rules, which means your SMSF can own a warehouse or factory and lease it to your company without breaching the 5% cap, provided the property is used exclusively for business purposes.

The lease must be on commercial terms, meaning the rent charged should reflect market rates. The ATO scrutinises related-party transactions closely, and any arrangement that appears to benefit the member rather than the fund could trigger penalties. For related-party loans, the safe harbour interest rate for the 2025-26 financial year is 8.95%, down from 9.35% the previous year. If your SMSF borrows from a related party to acquire the property, the loan terms must align with these benchmarks to remain compliant.

In our experience, young families using their SMSF to purchase industrial property often do so with the intention of leasing it to their own business. The tax treatment makes sense, the rental income stays within the fund, and the business secures long-term tenure. The structure works as long as the property is used exclusively for business operations and the lease is documented and reviewed annually.

Trustee training and compliance obligations

Trustees of SMSFs with borrowing arrangements are now required to complete certified training covering LRBAs, related-party transactions, cash flow planning, and compliance obligations. The training applies to both new and existing trustees, and non-compliance can result in penalties of up to $19,800 or disqualification of the fund.

The ATO has increased data-matching and transaction monitoring for SMSFs with LRBAs, and trustees must maintain rigorous records of loan agreements, rental income, property expenses, and trust deeds. The compliance burden is higher than it used to be, and the consequences of getting it wrong are more severe.

If you are considering commercial loans within your SMSF, working with a broker who understands the ATO's expectations and the lender's requirements can reduce the risk of errors and ensure the structure is set up correctly from the start.

What happens if you want to refinance the SMSF loan

Your SMSF can refinance an existing LRBA, provided the refinance complies with the single acquirable asset rule and the bare trust remains in place. The property title does not change hands, so lender-to-lender stamp duty is generally avoided.

Refinancing might make sense if you can secure a lower variable rate, access additional equity for other fund investments, or move to a lender with more flexible terms. The refinance must not alter the underlying asset or breach the limited recourse structure. The new lender can only claim the property, not other assets in your fund.

If your SMSF holds a grandfathered residential property from before the mid-2026 ban, refinancing that property may still be possible, but the ATO has not yet clarified whether a refinance will be treated as a new LRBA under the new rules. Trustees should seek legal advice before proceeding, as acting without clarity could unintentionally strip the grandfathered status and trigger penalties. For industrial and other commercial property, refinancing remains available under current rules and is unaffected by the residential ban. You can explore your options through refinancing services tailored to SMSF structures.

Call one of our team or book an appointment at a time that works for you. We can walk through the borrowing structure, compare lenders offering SMSF commercial property loans, and make sure your fund has the liquidity and documentation in place to support the purchase.

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