Renting a commercial property owned by your SMSF? - Grow SMSF

One of the key concepts with having an SMSF, is that as trustee you must preserve the assets of the SMSF for your retirement.  With that in mind, the ATO is exceptionally clear that as trustee you must not treat the assets or income of the SMSF as your own – it’s not, it belongs to your future self in the form of retirement income. Renting a commercial property owned by your SMSF?

With that in mind, it’s important to remember that when the SMSF owns a commercial property and you in your capacity of operating a business, lease the property, it must be treated as though you were in fact leasing the premises from someone else.  This is what is referred to as Arms Length transactions.

Update 07/04/2020: Government Announces Code of Conduct for Commercial Tenancies

The Prime Minister has announced a mandatory code for commercial rents, which will apply if a tenant or landlord is eligible for JobKeeper payments and have turnover less than $50 million.The code will comprise “good faith leasing principles” that will be applied through binding mediation, and enforced in state and territory laws.

Landlords must reduce rents in proportion to the losses to their tenant’s business, and waivers must be at least 50 per cent of the reduction in turnover. They are also banned from terminating a lease or drawing on tenants’ securities.

Tenants must honour their lease.

Read more here: Code of Conduct for Commercial Tenancies including SMSFs

Update 28/03/2020: ATO Provides SMSF Rent Relief due to COVID-19

The ATO has announced it will not be taking compliance action for the 2020 and 2021 financial years where an SMSF provide rent relief to a related party business leasing commercial property from the fund. So if your business has a lease agreement with your SMSF for it’s premises / property being forced to pay market rent at while being impacted by Coronavirus is one less thing for business owners to worry about.

More here: SMSF Rent Relief for Related Party Tenants

Arms length transactions are the type of transaction where two independent strangers are making an agreement, neither one wants to get the worse end of the deal.  These type of transactions are generally determined by the current market situations.  Take Rent for example, if you were in an area that had surplus office spaces which high levels of vacant offices, most likely to get a tenant in the space, you would discount the rent.  Obviously, if the reverse is true you could increase the rent on the premises.  It comes down to market forces, supply and demand which will generally determine the rent that two independent parties will agree to.

How this applies to the commercial property owned by the superfund, is that at the point in time of renting the property, an independent third party, usually a real estate agent, will give you an estimate of what the place can be rented for.  This is the amount for which a lease is established between your business and the SMSF.  As you are keeping the “arms length” aspect of the transaction, it is important to organise a lease for the property – spelling out when the lease commences, ceases, options to extend, payment terms ie monthly, weekly, and who is responsible for the outgoings of the property.  These are the terms of which the auditors will review to assess if the property is truly meeting the definition of “arms length”.  Please note, if you are not going to comply with the term, do not include it.  The auditors are not looking for what terms are in the lease, they are looking for compliance with the lease.

Three years pass, and we are asking for another market valuation for not only the property value but also the rent.  Responses to this request for new market valuations are generally met with; “why do I have to provide another market value, we have a lease in place?”  Very true, a valid commercial lease is in place and has ensured that the SMSF has complied with the relevant legislation.  However, there are other sections of the SIS Act that clearly states that not only does the property have to be recorded at market value, any related party transactions must be done at current market values.  In this instance, the rent between your business and the SMSF is to be reviewed, and at least every 3 years a written valuation from a third person must be obtained.   Most situations, it is another piece of paper to obtain for us which the only impact you will notice will be that the market value of the property in the financial statements has changed, hopefully for the better.

So, when the 30th of June rolls around this year, please keep in mind that if you haven’t obtained a market valuation for a few years, we will be asking for one, as well as a current lease if we need to.  Before 30 June, please take a minute to read your lease and assess if you are complying with the terms, such as payment of the outgoings, or even something as simple as, am I paying the correct rent – inclusive of GST?  If the lease isn’t working for your business, consider putting a new one in place, remembering that rent must be market value to ensure compliance.


Related Articles

Interested in setting up an SMSF?

The following pages provides more information on how you can establish an SMSF: How to set up an SMSF

If you have any questions please contact Grow SMSF.


  • Anne

    November 13, 2017 at 11:43 am

    Hi, We have a SMSF and we have bought an investment property with LRBA and set up a Bare Trust. What name should be on the Lease Agreement, the Bare Trust name or “name P/L ATF name super fund”. Our Accountant is saying Bare Trust and our property manager is say the other.

    Thanks A



      February 4, 2023 at 9:17 am

      CAFE- I am in this situation where my lease expired on 30 June 2022 with an option to renew for a further 5 years. We have decided not to renew the lease because of the many previous and current economic effects ie increased food cost, increase electricity & gas, increase wages, fewer customers ie working from home, fuel prices increase, new competitors, and now an increase in market rent. If we pay the new Market rent then this will be an increase of $850 per month Net + all outgoings (all increased) and GST ON THE RENT.
      1. do I have to take up the option of 5 years and can I negotiate the market new rent due to the above factors mentioned.. if by law we pay the market rent then our business can not afford this and I would be forced to close my business in my SMSF property.
      2. If I don’t have to take up a new lease how is the rent assessed market rent net GST and all outgoings or current rent net GST with CPI increase + all outgoings?

      Please share your advice on the above


      • Kris Kitto

        February 6, 2023 at 10:13 am

        I will answer with the assumption that you are running a business (cafe) and that the cafe business is leasing the premises from your SMSF.

        There is nothing stopping a tenant and landlord from negotiating a new lease at any time. You are never forced to take the option of extending the lease.

        You SHOULD obtain an independent rental assessment at least every 3 years, or when there are significant changes in the market. The key part is INDEPENDENT.

        I’d suggest you get in touch with a local commercial real estate agent who leases similar properties in your area. If the market has changed (due to local economic conditions) get an updated appraisal as the basis of a new lease. The appraisal will specify what outgoings are included and the applicable CPI increase etc.

        The SMSF has to charge a market rate lease to your business and enforce it exactly the same as if the SMSF was leasing the premises to an unrelated third party.

        I understand that it is tricky because you are wearing two hats – one as trustee of the SMSF (landlord), and the other as the business owner (tenant), and there is an inherent conflict between the two. I cannont provide any further guidance specific to your situation. All the best!


  • Christopher Nikolovski

    June 29, 2023 at 10:07 am

    Where there is an existing lease agreement in an SMSF with a related party can the rent be increased? What documents need to be produced/issued.


    • Kris Kitto

      June 29, 2023 at 10:10 am

      Of course it can, provided the terms of the original agreement enable it.

      You would need to obtain an updated rental appraisal and valuation from either an agent (with comparable rents) or an independent valuer.

      Either a new lease agreement would be needed or an addendum to the existing agreement.

      The key thing is ensuring the lease is at market value and you have evidence to support that.


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