Key Takeaways
- An SMSF can buy business real property from a member or their practice at market value and lease it back under an enforceable, market-rent lease.
- From 10 August 2026, a new SMSF loan for real property can only fund business real property, which must keep qualifying for the life of the loan.
- Rent paid late or set below market may expose the fund to in-house asset breaches or non-arm’s length income tax.
- Lenders typically cap SMSF commercial lending at around 65% to 70% of value and expect cash left in the fund after settlement.
Many practice owners pay rent every month on rooms they have worked from for years, and none of that money stays with them. Buying practice premises through your self-managed super fund (SMSF) changes where the rent goes. Your SMSF owns the consulting rooms, your practice leases them at market rent and the rent builds your fund’s balance instead of a landlord’s.
Since 10 August 2026, new SMSF borrowing for real property has been confined to business real property, so medical and dental suites are among the few property types a fund can still borrow to buy. As an SMSF loan broker, we find the property and the lease usually decide these purchases before the loan does.
Questions about contributions, capital gains tax, transfer duty and your fund’s tax position sit with a licensed SMSF adviser or registered tax agent and are usually settled before anything is signed.
Why Can Your SMSF Own Your Consulting Rooms?
Your SMSF can own your consulting rooms because business real property is carved out of the super law rules that otherwise stop a fund from buying assets from its members or leasing assets to them. The provisions that apply are:
Related-Party Purchase Exception
You or your practice entity can sell business real property to your SMSF, provided the fund pays market value. Section 66 of the Superannuation Industry (Supervision) Act 1993 (SIS Act) prohibits an SMSF from acquiring assets from related parties, and business real property is one of the exceptions. Related parties include members, their relatives and the companies or trusts they control, which typically covers a practice entity.
An independent valuation is the usual evidence that the price matches market value.
In-House Asset Exemption
A lease of business real property to your practice is exempt from the in-house asset limit, as long as the lease is legally enforceable. Under the SIS Act, an in-house asset includes a fund asset leased to a related party, and in-house assets are capped at 5% of the fund’s total assets. A medical suite would likely exceed that limit in most funds. The exemption sits in section 71 of the SIS Act.
It holds only while both conditions are met. When either lapses, the suite may become an in-house asset and the fund may be in breach.
2026 Borrowing Limit
For a limited recourse borrowing arrangement (LRBA) entered into on or after 10 August 2026, an SMSF can only borrow to acquire real property that meets the business real property definition. Binding contracts exchanged before that date, and refinances of LRBAs already in place, remain under the earlier rules.
Under the new LRBA rules, the Australian Taxation Office (ATO) has confirmed that the property must be wholly and exclusively used in one or more businesses when the LRBA is entered into. Business use must also continue for as long as the LRBA exists, and a fund whose property stops qualifying during the loan breaches the borrowing rules.
Does Your Practice Property Qualify as Business Real Property?
Your practice property generally qualifies if it is land and buildings used wholly and exclusively in one or more businesses. Commercial zoning, a ‘commercial’ listing or a lender treating the property as commercial security does not settle the question on its own. The factors that usually decide it for a medical or dental practice are:
Business Use
For a clinic, business use typically covers consulting and treatment rooms, sterilisation and imaging areas, reception, staff rooms and storage, as well as car spaces used by staff or patients.
Private use can put the whole property outside the definition. Examples include a room used to store personal belongings or space used for family stays between sessions. Where non-business use is more than incidental, the property may not qualify.
Residential Components
A flat above the practice that is rented to a residential tenant or used by family is not business use, and it may stop the entire property from qualifying. A converted house used wholly as a clinic may qualify. Lenders sometimes value and assess it as residential security, though, which can change the loan terms available.
Vacant Suites
A temporarily vacant commercial property keeps its business real property status while the owner is actively looking for a new tenant, according to the ATO. It loses that status if the owner abandons plans to lease it.
Off-the-plan medical suites and premises bought with vacant possession raise a further question about whether the property qualifies on the day the LRBA starts. The answer may depend on the property’s design, zoning and the facts around its intended use.
Separate Titles
Car spaces or storage cages on separate titles may need their own LRBA, because each LRBA must relate to a single acquirable asset. Under the ATO’s ruling on LRBAs, a suite and car space on separate titles may be treated as one asset where the titles must be dealt with together, such as where a restriction on title prevents them from being sold separately. From 10 August 2026, titles treated as one asset must together meet the business real property test. Checking the title structure early may avoid restructuring the purchase late.
Shared Tenancies
Business use does not have to be your own practice’s. Your practice may sublet rooms to allied health practitioners, or the fund may lease part of a building to an unrelated tenant, and the property can still qualify. Any lease to an unrelated tenant also needs to be on arm’s length terms. A mix of related and unrelated tenants usually changes how a lender reads the property’s income.
How Can Your SMSF Fund the Purchase?
The fund can pay from its own balance or borrow, and the source of any loan changes the terms it must meet. The routes generally available are:
Cash Purchase
A fund with enough cash can buy the rooms outright and avoid the borrowing rules. An SMSF can have up to six members, so combined balances across spouses or family members may make this realistic for an established practice owner. Transfer duty, legal fees and valuation fees are paid from fund money.
Third-Party Loan
An LRBA lets the fund borrow from a lender to buy a single asset. The property is held on a bare trust, also called a holding trust, until the loan is repaid, and the lender’s recourse on default is limited to that property. Many lenders ask members for personal guarantees, so your personal exposure may not be as limited as the name suggests.
The ATO’s LRBA ruling also allows borrowed money to fund the purchase price, acquisition costs and later repairs and maintenance, but not improvements. Holding the rooms personally or through the practice is the main alternative, with SMSF and traditional loans differing in deposit, lender choice and how the debt is repaid.
Related-Party Loan
A member, or an entity a member controls, can lend to the fund under an LRBA in place of a commercial lender. The loan must be on arm’s length terms, or the fund’s income from the property may be taxed as non-arm’s length income (NALI).
The ATO’s Practical Compliance Guideline (PCG) 2016/5 sets out safe harbour terms it accepts as arm’s length. For real property, the 2026–27 safe harbour interest rate is 9.35%. The rate may be variable and reset each 1 July, or fixed for up to five years from the start of the loan.
Other safe harbour terms include a maximum loan term of 15 years, a maximum loan-to-value ratio (LVR) of 70%, a registered mortgage, a written loan agreement and monthly principal and interest repayments.
These figures are a general guide only, and the full conditions are usually confirmed with an adviser before a related-party loan is documented.
What Does a Compliant Related-Party Lease Need?
A compliant lease operates exactly as one between unrelated parties would, and the fund’s auditor checks it against that standard each year. The elements typically examined are:
Rent Set by Independent Valuation
A qualified commercial valuer usually sets the rent using comparable rents for similar suites in the same area. A figure agreed with your accountant, or copied from the previous landlord’s lease, is harder to defend. Keeping the valuation on the fund’s file gives the auditor evidence that the starting rent was arm’s length.
Fixed or index-linked increases between reviews, with a market review at each option, help keep the rent aligned with what an unrelated tenant would pay.
Lease Written on Commercial Terms
The in-house asset exemption depends on a lease that is enforceable by legal proceedings, and a written lease drafted by a solicitor is the usual way to meet that standard. It typically sets out the term and options, rent and review method, who pays outgoings such as rates, strata levies and insurance, the security deposit or bank guarantee, permitted use and make-good obligations.
Auditors typically ask to see the signed lease. A practice that occupies the rooms under an informal arrangement while the paperwork catches up may create a breach in the fund’s first weeks of ownership.
Rent Paid in Full on Time
Each payment needs to reach the fund’s bank account in full on the due date. Arrears left unenforced may be treated as financial assistance to a member, which super law prohibits. An unpaid amount owed by a related party may also be treated as a loan to that party and become an in-house asset.
Practice cash flow can dip during leave periods or when a principal steps back. Any rent relief needs to be on terms an unrelated landlord would accept and documented when it is given.
Rent Kept Within Market Range
Below-market rent may cause the fund’s income from the property to be treated as NALI. The ATO taxes NALI at the highest marginal rate of 45%, in place of the 15% concessional rate that usually applies to fund earnings.
Rent above market raises its own compliance questions, since it can move extra value from the practice into the fund outside the normal contribution rules.
Fit-Out Kept Separate From the Premises
The fund owns the premises, while the practice usually owns and finances its own fit-out, such as joinery, dental chairs, plumbing, imaging shielding and equipment. The lease sets out what happens to the fit-out at the end of the term.
Equipment owned by the fund and leased to the practice is not business real property, so it may count as an in-house asset. While an LRBA is in place, the ATO’s ruling also prevents improvements that change the property into a different asset. Funding the fit-out through practice finance generally keeps the two arrangements separate.
What Do Lenders Assess on an SMSF Medical Premises Loan?
Lenders assess whether the suite, the fund and the lease together can carry the debt, and policies vary widely across the relatively small group of lenders offering SMSF loans for medical and dental suites. A commercial property loan broker can compare those policies before an application is lodged. Assessment usually turns on:
Loan-to-Value Ratio
SMSF commercial loans typically lend around 65% to 70% of the property’s value, depending on the lender, location and the property itself. Specialised suites, such as dental surgeries with extensive plumbing or rooms built for imaging, may attract lower limits because they are harder to re-let to a different type of tenant.
As an illustration only, a $1,200,000 suite at a 65% LVR would mean a $780,000 loan. The fund would contribute $420,000 plus costs from its own balance.
Fund Serviceability
Rent from the practice is usually the fund’s main source of repayments. Some lenders also count members’ ongoing contributions.
Because the tenant is your own practice, lenders often examine the practice’s financial statements to see that the rent is sustainable. A practice with uneven earnings, or one that has recently changed ownership structure, may face more questions.
Liquidity Buffer
Lenders look at what the fund holds after the deposit and costs are paid. The buffer covers repayments, rates, insurance, audit fees and accounting fees, as well as any period where rent stops. Some lenders set it as a percentage of the loan or property value, others as a number of months of repayments.
Members cannot top up the fund freely when cash runs short, because contribution caps limit how much can go in each year. A fund with no buffer may have few options when the practice has a difficult quarter.
Lease Term
A lease that expires well before the loan term ends, with no options, may reduce what a lender will offer. Some lenders want evidence that the related-party rent matches the market and may assess the property’s value on that basis. A signed lease starting from settlement is commonly a loan condition.
Trust Structure
Lenders generally require the SMSF to have a corporate trustee, and most require a separate company to act as trustee of the bare trust. The lender’s solicitors usually review the fund’s trust deed, the bare trust deed and the lease before approval, so having them in order early may save weeks.
What Order Should the Purchase Steps Follow?
The steps generally run from checking the fund’s documents, through confirming eligibility and finance, to exchange and the lease. A typical sequence for an LRBA purchase is:
- Confirm the fund’s trust deed allows borrowing and the investment strategy covers a single large property.
- Obtain written confirmation from your adviser that the premises meet the business real property test.
- Seek finance pre-approval for the specific property type before committing to a price.
- Establish the bare trust and its corporate trustee before contracts are exchanged.
- Exchange contracts in the correct name, with finance and valuation conditions included.
- Obtain the market rent valuation and sign the lease to start from settlement.
This sequence is a general guide. The order and documents may vary depending on the lender, the state the property is in and your adviser’s approach. Mistakes made before exchange are often the hardest to reverse, and a contract signed in the wrong name may need to be unwound or restructured at extra cost.
What Are the Risks of Holding Your Rooms in Your SMSF?
The main risks come from tying your practice, your workplace and your retirement savings to the same asset. They tend to show up as:
Concentration Risk
A single suite may make up most of the fund’s value. The suite’s worth depends on one location, one building and often one tenant. Changes in the surrounding health precinct, such as a new medical centre nearby or a hospital relocating, may affect the practice and the fund at once.
Liquidity Pressure
Pension payments and loan repayments may be hard to meet together when a fund holds little outside the suite, because property cannot be sold in part. This pressure usually arrives when members move into retirement phase while the loan is still running.
Practice Exit
Selling the practice raises the question of whether the buyer will take over the lease on the same market terms. Relocating the practice leaves the fund needing a new arm’s length tenant.
Confirming Your Rooms Qualify
A practical next step before making an offer is gathering the fund’s trust deed, its latest audited financial statements and a title search for the suite. With those three documents, your adviser can check the property against the business real property test while a lender gives an indicative view on the loan.
If you are weighing up buying your practice rooms through your SMSF, the team at Q Financial can talk you through the lending options that suit your fund and your practice.
Frequently Asked Questions (FAQs)
Super law sets no minimum balance. Lenders apply their own thresholds based on the deposit, costs and buffer the purchase requires. At typical SMSF commercial LVRs, the fund may need to contribute 30% to 35% of the price plus costs and still hold cash afterwards. For some funds, the numbers may work better after a few more years of contributions.
Two funds can generally hold a property as tenants in common, with each fund owning a defined share. Borrowing is more complex, because each fund’s LRBA must relate to its own interest and fewer lenders accept that structure. A co-ownership agreement covering sale, exit and decision-making is usually needed. The structure is worth confirming with your adviser before you look at properties.
Often, yes. Where members guarantee the loan, lenders usually assess their income, debts and assets as a backstop to the fund.
Personal borrowing may therefore affect how much the fund can borrow. The timing and size of a home loan arranged through a mortgage broker for doctors or a dentist home loan broker may need to be planned alongside the SMSF purchase.
An SMSF purchase typically takes longer than a standard commercial purchase, although timeframes vary depending on the lender and the fund’s documents. Setting up the bare trust, the specialist valuation and the lender’s legal review of the fund’s documents each add time. A longer settlement period than usual may give the process room to run without pressure.
Generally, yes. A refinance must relate to the same property, and it usually cannot be used to release equity.
SMSF loan refinancing also involves its own lender checks, including the property’s current value, the fund’s repayment history and its liquidity.
Generally, yes. A refinance must relate to the same property, and it usually cannot be used to release equity.
Most purchases involve a licensed SMSF adviser or accountant for super and tax questions, and a solicitor for the contract, bare trust and lease. A commercial valuer handles the property and the rent, and a broker handles the finance. Q Financial works with healthcare professionals alongside their adviser and solicitor, so the finance fits the structure they have set.
This article provides general information only and does not take into account your objectives, financial situation or needs. You may wish to speak with a licensed SMSF adviser, registered tax agent, solicitor or other qualified professional before acting on any of it.
