Buying commercial property for the first time: what changes from residential

Why this is suddenly an investor question, not just an owner-occupier one

Individual and SMSF investors have been drifting toward commercial property for a while, and two tax changes are turning that drift into a harder push. Negative gearing on an established residential dwelling bought after 7:30pm on 12 May 2026 is now quarantined: from 1 July 2027, those losses can no longer reduce your salary tax bill the way negative gearing does today; they can only be offset against other residential rental income or a future capital gain, a restriction that doesn't extend to commercial property or to new residential builds. Separately, the ATO's rule on limited recourse borrowing arrangements (LRBAs) changed on 10 August 2026: an SMSF LRBA entered into on or after that date to buy real property can now only be used to acquire business real property, so an SMSF can no longer borrow to buy a residential investment property at all. Existing LRBAs and contracts exchanged before that date are grandfathered and refinancing an existing arrangement for the same asset is still allowed, but for any new SMSF property borrowing, commercial is now effectively the only real property option on the table.

Both changes land on top of a persistent yield gap. Cotality's Home Value Index put the national gross residential rental yield at 3.8% as at 31 August 2026, while Colliers puts Sydney commercial yields in a 5.25% to 7.50% range across sectors. Two of the main levers residential investors have relied on, gearing inside an SMSF and offsetting losses against other income, have both been narrowed at the same time commercial property's tax and borrowing treatment stayed put, a shift our earlier look at why individual investors are shifting to commercial property covers in more depth. That change lands on investors who, in many cases, have only ever bought a house before. The mechanics below cover what's actually different about doing this as a commercial purchase, structured as the process runs in practice.

The purchase process, step by step

1. Choose your buying structure before you start looking. Whether you buy personally, through a trust, a company or an SMSF changes what you can do with the property later, not just how settlement is documented. An SMSF gets access to a specific exception: business real property, land and buildings used wholly and exclusively in a business, can be bought from a related party at market value and leased back to a fund member's own business on an arm's-length lease, something an SMSF cannot do with residential property. That exception, and the new LRBA restriction above, both turn on the same test, so get the structure right before you make an offer, not after.
2. Arrange finance shaped for commercial lending, not a home loan pre-approval. Commercial loans sit outside the National Credit Code, which applies to credit for personal or household purposes or for buying residential investment property, so the responsible-lending framework and protections built around a home loan don't carry across the same way to a loan secured against commercial property or made to a company. Lenders also assess differently: Westpac's standard commercial lending pathway lends up to 65% of the value of non-specialised commercial property (dropping to around 50% for specialised assets like service stations or aged care), sets the loan term to align with the lease's expiry rather than a fixed 25 to 30 year term, and assesses serviceability largely on the rental income and the tenant, not just the borrower's income. Commercial finance brokers describe a broader market range of around 60% to 70% LVR as typical, occasionally reaching 80% for selected borrowers and properties. Compare that with residential, where some lenders accept a 5% deposit and lenders mortgage insurance, a home-loan mechanism, covers the gap above 80% LVR; that mechanism has no real commercial equivalent, so expect to fund a substantially larger deposit.
3. Search with the lease, not just the floor plan, in mind. A tenanted commercial property is priced on its income: the passing rent, the tenant's covenant strength and the term remaining on the lease usually matter more to value than finishes or aspect. Lenders will ask for a tenancy schedule and a full copy of the current lease as standard, so if you can't get those from the agent early, you can't get finance moving early either.
4. Order due diligence built around the lease and the building's compliance obligations. There's no standard equivalent of a residential building and pest inspection; instead, due diligence centres on the lease and the building's statutory position. Outgoings need checking against the lease and, for a retail shop lease, against the landlord's disclosure statement: a tenant generally isn't liable for outgoings that weren't properly disclosed, so a buyer can inherit a shortfall the previous owner was quietly absorbing. Zoning and permitted use need confirming against the local planning scheme, and contamination is a mandatory planning consideration for certain sites, particularly former industrial land. Two compliance items are easy to miss because a house has no equivalent: an annual fire safety statement, confirming the building's fire safety measures still work as required and lodged with the local fire authority, and compliance with the Disability (Access to Premises) Standards, which set accessibility requirements for public buildings under the Disability Discrimination Act.
5. Negotiate and exchange knowing there's usually no cooling-off period. Commercial property is carved out of the statutory cooling-off regime in the three most populous states. Victoria's Sale of Land Act excludes land used primarily for industrial or commercial purposes from the right altogether, and separately excludes any purchaser that is a company, so a corporate or SMSF-trustee buyer gets no cooling-off even on a residential purchase. Queensland's cooling-off regime under the Property Occupations Act is confined to "residential property" sales by definition. New South Wales' 5-business-day cooling-off period is likewise limited to residential property; land used exclusively for non-residential purposes is one of the standard carve-outs. In practice, that means the contract you exchange is the deal, with none of the few days' grace a residential buyer gets to walk away.
6. Work out the GST position before you agree a price, not after. Selling commercial premises is generally a taxable supply, so GST is usually payable on the sale price, unlike an established residential dwelling, which is input taxed and carries no GST either way. Two things can change that: if the property is leased at the time of sale, the sale may qualify as a GST-free supply of a going concern, but only if the price includes payment, the purchaser is (or should be) GST-registered, everything needed to keep the business running is supplied, the seller keeps running it until settlement, and, critically, both parties agree in writing that it's a going concern sale before settlement. Alternatively the parties can agree to use the margin scheme, which charges GST on the margin rather than the full price, but that also needs a written agreement before settlement, and a buyer who pays under the margin scheme can't claim the GST back as a credit. Whichever basis applies changes the cash you need at settlement, so this needs resolving during negotiation, not left to the conveyancer to discover afterward.
7. Settle, then start on day-one compliance. Transfer duty applies in every state regardless of property type, though the details diverge: NSW's surcharge purchaser duty for foreign buyers applies to residential-related property, not commercial, so a foreign purchaser of commercial property generally avoids it. Victoria is progressively replacing duty on qualifying commercial and industrial property with an annual Commercial and Industrial Property Tax of 1% of site value, starting ten years after a qualifying purchase from 1 July 2024 onward, a reform with no residential equivalent and no direct precedent in the other states. Once you own the building, the annual fire safety statement and the lease itself become ongoing obligations from day one, not a one-off due diligence item.

Why the SMSF rule matters beyond SMSF investors

The LRBA change is narrow on paper, a borrowing rule for self-managed super funds, but it reshapes the wider pool of capital looking at commercial property. Recent SMSF figures put more than $1 trillion in total assets across Australia's SMSFs, with a combined 17.5% held in residential and commercial property between them. With new SMSF property borrowing now channelled toward business real property only, a share of that capital that might previously have gone toward a geared residential investment property has nowhere left to go within an SMSF except commercial, on top of the individual investors already moving for the negative gearing and yield reasons above. Both groups are arriving at the same unfamiliar process at the same time, which is exactly why the mechanics above are worth working through before signing anything.