Recent changes to superannuation law have created uncertainty for some property investors, but for childcare centre owner-operators, the key pathway remains firmly open.

The new rules have banned self-managed superannuation funds (SMSFs) from entering new limited recourse borrowing arrangements (LRBAs) to purchase residential property, effective 10 August 2026. For many Australians who had been using SMSFs as a vehicle for residential property investment, the window has effectively closed.    

However, commercial property purchases through SMSFs remain open, which means that childcare centre operators are in a different position entirely. The legislation specifically preserves LRBA borrowing for business real estate property, and childcare centre premises qualify. For owner-operators who have been considering using their SMSF to buy their centre, the strategy is unaffected by the new rules.

How does buying commercial property through an SMSF work?

An SMSF can borrow money to purchase a commercial property using an LRBA. Under this structure, the property is held in a separate bare trust during the loan term, with the lender's security limited tothat single asset. This means that if the SMSF defaults on the property loan,the rest of the fund's retirement savings remain protected. Once the loan is repaid, legal ownership transfers to the SMSF directly.

Income earned by the property, including rental income, is taxed at 15% inside the fund during accumulation phase and at zero once the fund moves into pension phase. For business owners building long-term retirement wealth, the tax advantages are substantial.

The biggest advantage for owner-operators

One of the biggest drawcards of this process for owner-operators is the leaseback arrangement. Under this arrangement, the fund is allowed to lease the property to a fund trustee, provided it is done so at market-related rates. That means your SMSF can purchase your centre, and you can lease it from the fund.

This arrangement must be conducted on arm's-length commercial terms, but when structured correctly, it converts what would otherwise be a rent payment to a third-party landlord into a contribution flowing directly into your own retirement fund.

What to consider before buying your childcare centre through your SMSF

Buying commercial property through an SMSF might not be the right fit for every operator. Here are a few things you should consider before deciding:

  • Fund balance: Lenders typically require the SMSF to hold sufficient assets to cover the deposit, stamp duty, legal costs and ongoing expenses after settlement. A fund with limited assets may not meet serviceability requirements.
  • Lease terms: The leaseback must be at market rent and on arm's length commercial terms. Below-market arrangements can trigger serious compliance issues with the Australian Taxation Office.
  • Borrowing capacity: SMSF loans might be assessed differently to standard commercial loans.
  • Long-term  planning: Consider how the property fits within the fund's broader investment strategy and how it will be managed at retirement, whether sold, retained or transitioned as part of a pension phase strategy.

Is an SMSF the right structure for you?

For operators already committed to running a quality centre in a good location, ownership through an SMSF is one way to ensure the financial benefits of that commitment extend beyond the business itself.

As with any superannuation strategy, the right approach depends on individual circumstances. Professional financial and legaladvice is advised, but understanding your finance options is a useful first step.

 

Ligo Finance works exclusively with childcare operators to structure the finance that makes ownership possible, including SMSF lending for commercial premises. Get in touch to find out what your options look like.