If your SMSF owns property, or you’ve been thinking about borrowing to buy one, you’ll be hearing the term 'business real property' a lot more from now on. In October 2026, the ATO released a draft update to its guidance on what counts as 'business real property' (SMSFR 2009/1). It follows a law change that took effect on 10 August 2026. Since then, an SMSF can only take out a new borrowing arrangement to buy business real property. Residential investment property is no longer an option for new borrowing. The draft is open for public comment until 27 November 2026, so some details may still change. In the meantime, here’s how it could affect your fund.
What is business real property?
Business real property is land and buildings used wholly and exclusively in one or more businesses. Offices, shops, warehouses, factories and many farms all fit this description. A few things to keep in mind:
- Use matters more than zoning. A house used entirely as a doctor’s surgery can qualify. A commercial building sitting empty, or only partly used for business, may not.
- “Wholly and exclusively” means exactly that. The ATO looks at how the whole property is used. A shop with someone living in the flat upstairs will generally fail. There are a few narrow exceptions, such as a farmhouse on a working farm.
- The business doesn’t have to be yours, though it can be. If your SMSF leases a warehouse to an unrelated company that runs its business there, it can still be business real property.
What’s changed, and when
- 26 June 2026 - The law limiting SMSF property borrowing received Royal Assent
- 10 August 2026 - New borrowing arrangements to buy property must be for business real property
- October 2026 - The ATO released draft updates to its business real property and borrowing rulings
- 27 November 2026 - Public comment on the drafts closes
A limited recourse borrowing arrangement (LRBA) is the type of loan an SMSF uses to buy an asset. LRBAs haven’t been banned. They just can’t be used for residential investment property any more. For new loans, the ATO says the property must be business real property when the loan starts and must stay that way for the whole life of the loan.
What this means for your fund
- You already have a property loan. You’re generally not affected. The change doesn’t apply to LRBAs entered into before 10 August 2026, or to refinancing those loans. It also doesn’t apply if your fund exchanged a binding contract to buy before 10 August 2026, even if settlement happened later.
- Your fund owns property outright. The borrowing change doesn’t affect you. Business real property still matters in other ways, though. For example, it’s one of the few assets your SMSF can buy from a member or related party.
- You’re planning to borrow to buy property. The property needs to qualify as business real property from day one. Planning to switch it to business use after you buy is unlikely to be enough, and neither is a “commercial” label on the listing.
- Your fund has borrowed since 10 August 2026. Keep a close eye on how the property is used. If the business use stops, or part of the property becomes residential, it could stop qualifying. That can create a compliance issue for your fund.
What to do next
- 1. Keep your key documents together. Your contract, loan and any refinancing paperwork show which rules apply to your fund.
- 2. Keep a record of how the property is used. Leases, tenant details and business records all help show that it qualifies.
- 3. Talk to us before anything changes. That includes buying a new property, signing a new tenant or changing how the property is used.
We’re following the ATO’s consultation closely and will let you know if the final guidance changes anything. Every fund is different, and whether a property qualifies depends on its own facts. If you’re not sure where your fund stands, get in touch with us and we’ll work through it with you.
This is general information only. It is not financial, investment or tax advice and does not take into account your personal objectives, financial situation or needs. Andromedae and its staff do not provide advice on whether to establish an SMSF or on any investment decision. You should seek independent professional advice before making any decision
