From 10 August 2026, a major shift applies to SMSF Limited Recourse Borrowing Arrangements (LRBAs): borrowing will be restricted to assets that meet the definition of “business real property” (BRP).
This change places full focus on how a property is used, rather than what it is called, zoned, or marketed as.
What is “business real property”?
In simple terms, business real property is land or a building that is wholly and exclusively used in one or more businesses.
The key idea is straightforward:
It is not about whether the property is residential or commercial in appearance — it is about whether it is genuinely used in a business, 100% of the time.
The only test that matters: actual use
Under the new framework, the assessment is based on use, not classification.
This means:
- Zoning is irrelevant
- Property type is irrelevant
- Marketing description is irrelevant
The deciding factor is whether the property is:
- Used entirely in carrying on a business, and
- Not used for private, residential, or mixed purposes
Even a minor non-business use can disqualify the asset.
What generally qualifies as business real property?
A property may qualify where it is used wholly in a business operation, such as:
1. Operating business premises
- Offices used entirely for a trading business
- Warehouses or factories used solely for commercial operations
- Retail premises fully occupied by business activity
2. Genuine property-based businesses
- A building used exclusively as part of a business enterprise
- Commercial property that is fully leased to operating businesses
3. Property held as part of a business structure
- Property held as trading stock in a genuine property development business
- Assets used directly in the operation of a business activity
In each case, the requirement is the same: 100% business use, with no private or residential element.
What does NOT qualify
The following will generally fall outside the definition of business real property:
- Airbnb and short-stay accommodation
- Holiday rentals
- Serviced apartments used for residential-style stays
- Mixed-use properties (e.g. shop downstairs, residence upstairs)
- Partially leased commercial or residential properties
- Dual-purpose assets with any private use
Even where these assets generate income, they are not considered BRP if the underlying use is not exclusively business.
Why zoning does not matter
A common misunderstanding is that zoning determines eligibility.
This is incorrect.
- A commercially zoned property can still fail the BRP test if it includes residential or private use
- A residentially zoned property can qualify if it is used entirely in a business
The legislation deliberately focuses on substance over classification.
The strict “wholly and exclusively” requirement
The BRP definition is highly restrictive.
To qualify:
- The property must be used entirely for business purposes
- There must be no residential occupation
- There must be no private use at all
- There must be no mixed-use element
This “all or nothing” approach means even minor non-business components can cause the asset to fail the test.
Practical examples
Example 1: Warehouse leased to a business
✔ Likely qualifies
- Entire building used for logistics operations
- No residential component
Example 2: Retail shop with apartment above
✘ Not business real property
- Mixed residential and commercial use
Example 3: Airbnb property
✘ Not BRP
- Used for short-term residential accommodation
- Treated as residential use despite income generation
Example 4: Office building fully leased to businesses
✔ Likely qualifies
- Entire property used for commercial operations
- No private use
Example 5: Residential-zoned property used as a medical practice
✔ Likely qualifies
- Entire building used for medical clinic or GP pratice
- There is no residential accommodation or private use component
- The entire property is used for patient consultations, administration, and clinical services
Despite being residentially zoned, the property may still meet the BRP definition because it is wholly and exclusively used in a business (medical practice).
This example highlights a key principle:
It is not the zoning that determines eligibility — it is the actual use of the property.
How icare super can help
Navigating the business real property test can be complex, especially where property use is not straightforward.
icare super can assist SMSF trustees and advisers by:
- Reviewing proposed property acquisitions for BRP eligibility
- Assisting with SMSF structure setup and compliance requirements
- Supporting documentation and audit readiness
- Helping assess whether property use meets the “wholly and exclusively” test
- Providing guidance on LRBA eligibility under the updated rules
Our goal is to help ensure SMSF investments are structured correctly from the outset, reducing compliance risk and avoiding costly restructuring later.
Key takeaway
Under the updated SMSF LRBA rules, business real property is the only category that will remain eligible for borrowing post-commencement.
The definition is narrow, strict, and entirely focused on one question:
Is the property used wholly and exclusively in a business?
If the answer is not a clear yes, the asset is unlikely to qualify.
Disclaimer
The information provided by icare super is for general informational and educational purposes only and does not constitute financial advice, legal advice, taxation advice, or product advice of any kind.
While every effort is made to ensure the information is accurate and up to date, no warranty is given as to its completeness, reliability, or suitability for your specific circumstances.
SMSF rules, including Limited Recourse Borrowing Arrangements (LRBAs) and the definition of business real property, are complex and subject to change. Outcomes may vary depending on individual facts and interpretations of the law.
Readers should:
- Obtain independent financial advice from a licensed adviser
- Seek specialist legal and tax advice before making any SMSF or property decisions
- Confirm eligibility requirements with their lender and SMSF professionals before entering into any arrangement
To the maximum extent permitted by law, icare super, its directors, employees, and related entities disclaim all liability for any loss or damage arising from reliance on this information.
This material is not an offer, solicitation, or recommendation to acquire any financial product or to enter into any transaction.
