SMSF Commercial Loans for Dentists: Buying Your Practice

A dentist can use an SMSF to buy the building their practice operates from, as long as the property is business real property and the loan is set up correctly. Since 10 August 2026, that business use test matters more than ever.

This article is for dentists weighing up whether to buy premises through super instead of renting them. The main point is that the building must be used wholly and exclusively in one or more businesses, both when the loan starts and for as long as it runs.

Can I Buy Commercial Property With My SMSF?

Yes, an SMSF can borrow to buy commercial property under a limited recourse borrowing arrangement (LRBA), but for loans entered into on or after 10 August 2026 the property can only be business real property. The ATO states that LRBAs are not banned and that the other rules for how they operate have not changed.

Under an LRBA, the SMSF trustee takes out a loan to buy the asset, and the asset is held in a separate holding trust (often called a bare trust). The SMSF gets a beneficial interest and the right to legal ownership once the loan is repaid. The lender's recourse is limited to that asset, so your other super assets are not exposed to the loan.

The trade-off is that borrowing inside super adds legal, compliance and set-up costs, and it concentrates a large part of your retirement savings in one building. Our SMSF loans for dentists page explains how we approach these loans.

What Counts as Business Real Property for a Dental Practice?

Business real property generally means land and buildings used wholly and exclusively in one or more businesses. A dental surgery fits this when the whole building is used for the practice or other businesses.

The test applies when the LRBA starts and for the entire life of the loan. A building described as commercial still has to pass it. Consider a dentist who buys a two-level building and runs the practice on the ground floor while the upper level is used as a private apartment or sits unused with no plan to lease it. That building may not pass the test, and the SMSF could be in breach of the borrowing rules. If the upper level is leased to another business, the whole building can still be used in businesses.

If a vacant tenancy is being actively marketed to a new tenant, the property does not stop being business real property for that reason alone. Abandoning plans to lease it does change the position.

Lease Back to Your Practice: How an SMSF Related Party Lease Works

Your SMSF can lease the building to your practice, which is a related party, and business real property is treated more favourably than other assets when this happens. Normally, leasing a held asset to a related party can make the fund's interest an in-house asset. That does not apply where the asset would not be an in-house asset if the SMSF owned it directly, and business real property is one such example.

The rent needs to be set at arm's length, meaning a market rate. If the arrangement is not on arm's length terms, the income can be treated as non-arm's length income and taxed at 45 per cent. Keep a market rent appraisal and a written lease on file.

Call one of our team or book an appointment to talk through your fund, your practice and the lender options.

A Worked Example: Practice Premises Bought Through Super

Consider a dentist who has run a practice in leased rooms for years and wants to own the building through the family SMSF. The aim is to turn rent that currently goes to a landlord into rent paid to the fund.

The steps look like this. The trustees confirm the building will be used wholly by the practice, and they get a market valuation. Because they are buying from an unrelated seller, the related party acquisition rules are not in play. A holding trust is set up, the lender is chosen, and the loan is set up as an LRBA. The practice signs a lease at a market rent supported by an appraisal.

For illustration only, a loan of $1,000,000 at an example rate of 6.75% p.a. over 20 years has monthly principal and interest repayments of about $7,604. The fund covers this from rent, member contributions and existing cash. If the rent and contributions are not enough, the fund may be forced into tough choices, so the trustees should stress test the numbers before signing.

The outcome in a scenario like this is that the practice pays rent into the fund instead of a landlord, the loan is repaid inside super, and the trustees hold documents that show arm's length dealing. The risk is that if the practice later moves out and the building stops being used in a business, the SMSF could breach the borrowing rules.

How Tax Works on SMSF Commercial Rent and Capital Gains

A complying SMSF is generally taxed at 15 per cent on assessable income such as rent, and net capital gains on assets held for at least 12 months get a one-third discount. That discount produces an effective rate of 10 per cent on the discounted gain, though the actual result depends on the cost base and the fund's overall tax position.

In pension phase, the fund may receive an exemption on income from assets supporting a retirement income stream, known as exempt current pension income. A capital gain is not automatically exempt just because a pension has started, and the method used (segregated or proportionate) changes the outcome. A capital loss on the building can only be offset against capital gains, not other income.

These are general statements only. Speak with your accountant about how they apply to your fund.

Buying From Yourself or Refinancing: Two Traps to Check

Buying a building you already own personally is a related party purchase, and it is only allowed in limited cases, including a market value acquisition of business real property. An existing fund asset cannot be placed into an LRBA, so the fund needs to buy the property rather than move one it already holds into a new loan.

Refinancing needs care too. Refinancing means a new loan contract over the same asset, and it must meet the law at the time of the refinance. A loan entered into before 10 August 2026 can be refinanced without the property needing to be business real property. A loan entered into on or after that date must be refinanced while the building still meets the test. Borrowed funds also cannot be used to improve the asset, so a fit-out or extension needs to be funded another way.

If you signed a binding contract before 10 August 2026, the new rule does not apply, even if settlement is later. The ATO has also opened consultation on draft updates to its business real property and LRBA rulings, so details may change.

Choosing a Lender and Preparing Your Application

Lenders for SMSF commercial loans differ on maximum LVR, rates, fixed or variable options, and how they assess rent from a related party, so comparing them is worth the effort. Your deposit size, fund balance and the lease terms all affect what is offered.

A broker who works with dentists can line up your fund's financials, the lease, the valuation and the trust documents before you apply. If you are also considering other finance, our pages on commercial and business finance through investment loans for dentists and borrowing capacity cover related ground. Getting loan pre-approval in place can also help you move when the right building comes up. Get legal and accounting advice on the trust deed and the fund's investment strategy before you commit.

Call one of our team or book an appointment at a time that works for you, and we will walk through your fund, your practice and the lender options with you.

Frequently Asked Questions