General Advice Warning. This article contains general information only and does not consider your personal objectives, financial situation, or needs. It is not personal financial product, tax, credit, or legal advice. Examples and figures are illustrative only — individual outcomes vary. Before acting on any information, seek personal advice from a qualified adviser.
For specialists who own or part-own a private practice, the consulting rooms they occupy each week are typically commercial premises owned by a third party. Rent paid to that third party is a deductible business expense — but the rent disappears every month.
There's a specific structural alternative that some practice-owning doctors use: holding the consulting room property inside their own SMSF, then leasing it to their practice. Rent paid by the practice flows into the doctor's superannuation rather than to an unrelated landlord. Over a 20-year career, this can shift significant wealth from rent expense into retirement balance.
This article walks through how the strategy works, who it suits, and the strict compliance requirements that must be met.
The basic concept
A self-managed super fund (SMSF) holds a commercial property — for example, a consulting suite or medical centre tenancy. The SMSF leases the property at a commercial market rent to a tenant. The tenant pays rent to the SMSF. The SMSF holds the rent as super assets.
Where it gets interesting for doctors: the tenant can be a related party — including the doctor's own practice. So the practice pays commercial market rent to the SMSF. The doctor (as SMSF member) accumulates retirement wealth from rent that previously went to an unrelated landlord.
The rent paid by the practice is still deductible to the practice. The rent received by the SMSF is taxed at 15% during accumulation phase (0% in pension phase). The mechanics work because commercial property is specifically exempt from the SMSF in-house asset rules that block residential property arrangements.
Why this works particularly well for medical practices
Three structural reasons:
1. Medical consulting rooms qualify as business real property
The SMSF rules generally prohibit SMSF assets being used by related parties — but there's a carve-out for "business real property." A commercial property used "wholly and exclusively in the carrying on of a business" can be acquired from a related party (e.g., the doctor purchasing it from their own practice or themselves) and leased to a related-party business.
Medical consulting rooms typically qualify. The doctor's practice carries on the business of providing medical services. The consulting rooms are used wholly and exclusively for that business.
2. The rent is a substantial, predictable, long-term expense
A specialist medical practice typically pays $80,000–$200,000 per year in rent for consulting rooms. Over a 25-year career, that's $2–5 million of rent expense, all of which goes to a third-party landlord.
Redirecting even a fraction of that into an SMSF that the doctor controls — invested in property they'd be renting anyway — is structurally efficient if executed properly.
3. The strategy combines acquisition (asset) with cash flow (rent capture)
Unlike a residential investment property where the doctor pays rent in addition to their own housing costs, the consulting room rent is already being paid as a practice expense. Redirecting it into an SMSF doesn't require new outflow — it changes the destination.
A representative example
Consider an illustrative orthopaedic surgeon with a private practice:
Current arrangement:
- Practice pays $120,000 annual rent for consulting rooms to unrelated landlord
- After 20 years of practice tenancy: $2.4 million paid in rent, zero asset accumulated
Restructured via SMSF:
- Doctor sets up SMSF and acquires the consulting room property ($1.4M, illustrative)
- SMSF borrows under Limited Recourse Borrowing Arrangement (LRBA) for purchase
- Practice leases the property from SMSF at $120,000 annual commercial rent
- Practice still claims rent as deductible expense
- Rent received by SMSF taxed at 15% during accumulation phase
- After loan repayment over 12–15 years: SMSF owns unencumbered $1.4M+ commercial asset
The strategy doesn't require new cash outflow from the doctor. The same $120,000 of rent that was being paid is being paid — to a different destination.
Illustrative example. Actual property prices, rental yields, loan terms, and SMSF performance vary. Past performance is not a reliable indicator of future performance. Property values may rise or fall. SMSF strategies require personal advice and specific implementation expertise.
Strict compliance requirements
The strategy works because it sits within specific SMSF exemptions for business real property. But the compliance requirements are strict, and failure to meet any of them creates serious consequences (loss of complying status, 45% tax on all SMSF assets).
Sole purpose test
The SMSF must be maintained solely for providing retirement benefits to members. The strategy is permissible because it ultimately funds retirement. But the SMSF cannot provide present-day benefits (e.g., the doctor cannot occupy a portion of the property for personal use, the rent must be at full commercial market rates, no concessional treatment of the related-party tenant).
Arms-length transactions
Every transaction between the SMSF and any related party must be at arms-length terms. This means:
- Property acquisition price must be at independent market value (independent valuation required)
- Rent paid must be at market rate (independent rental valuation, reviewed periodically)
- Lease terms must be commercial (lease agreement, rent review provisions, market-standard conditions)
A "sweetheart" deal — paying the doctor's own practice below-market rent, or buying the property from the doctor at above-market price — invalidates the strategy.
Business real property test
The property must qualify as business real property at all times. Mixed-use properties may not qualify (e.g., if a portion of the building is residential, or if a portion isn't used "wholly and exclusively" for business).
If the doctor sells their practice but retains the property in the SMSF, the property must continue to be leased to a business tenant on commercial terms. The doctor cannot occupy it for non-business use.
Limited recourse borrowing arrangement
If the SMSF borrows to acquire the property, the borrowing must be structured as a Limited Recourse Borrowing Arrangement (LRBA). This involves:
- A separate "bare trust" holding the property until the loan is repaid
- The lender's recourse limited to the property itself (cannot pursue other SMSF assets)
- Specific documentation and structure requirements
LRBA lending policies have tightened materially since 2018. Major banks have largely exited the market. Specialist non-bank lenders are still active, but LVRs are typically capped at 60–70% for commercial property.
Investment strategy alignment
The SMSF trustees (i.e., the doctor) must have a documented investment strategy that contemplates this kind of holding. The strategy must address diversification, liquidity, and member circumstances. Holding one large commercial property in an SMSF concentrates the fund significantly — the investment strategy must justify this.
Who this strategy suits
The strategy is materially viable when:
- The doctor owns or controls the practice — wage-earning hospital specialists can't direct rent flows
- Practice rent is substantial — at least $60,000+ per year to justify setup and compliance cost
- Career runway supports the strategy — at least 10 years until retirement to amortise the structure
- Combined SMSF balance supports the purchase — typically $400,000+ before considering LRBA leverage
- The property is genuinely commercial — not mixed-use, not subject to redevelopment risk
- The doctor accepts trustee responsibilities — SMSF trusteeship is a meaningful ongoing commitment
Who this strategy does NOT suit
Equally important to identify:
- Wage-earning hospital specialists with no practice — no related-party tenant available
- Doctors close to retirement — insufficient runway to amortise LRBA and structure cost
- Doctors uncomfortable with concentrated commercial property exposure — diversification suffers
- Doctors with under $300k of total super balance — SMSF fixed costs outweigh benefits at low balances
- Doctors planning to sell or close the practice within 5 years — the related-party tenant goes away
Common mistakes we see
Acquiring residential property under the same logic. SMSF residential property cannot be rented to related parties at all. The exemption applies only to business real property.
Operating at non-arms-length rent. Practice paying below-market rent to "help" the doctor's SMSF invalidates the arrangement. The ATO has explicit non-arms-length income (NALI) rules that penalise this severely (top-rate tax on the entire income from that asset).
Missing valuation requirements. Property must be independently valued at acquisition and rent reviewed periodically. Casual or informal valuations create compliance exposure.
Ignoring LRBA exit requirements. When the LRBA loan is repaid, the property must be transferred from the bare trust to the SMSF. This transfer has specific stamp duty considerations in some states.
Treating the SMSF as a separate piggy bank. SMSF assets are not the member's personal assets. Drawing on them outside permitted conditions of release (retirement, severe financial hardship, terminal medical condition) creates illegal early access penalties.
The setup process
A typical implementation involves:
Phase 1 (1–2 months): Establish SMSF, appoint corporate trustee, transfer existing super balances, formalise investment strategy.
Phase 2 (1–2 months): Identify suitable commercial property (existing consulting rooms or new acquisition), obtain independent valuations.
Phase 3 (2–3 months): Arrange LRBA structure if borrowing required, complete legal setup (bare trust, lease agreements, etc.).
Phase 4 (1 month): Settlement and lease commencement.
Total typical timeline: 6–9 months from initial discussion to completed acquisition. Setup costs typically $15,000–$30,000 for structure, documentation, and legal work.
What to do next
If you own or control a medical practice, your annual rent is significant, and you have a runway of 10+ years before retirement, the SMSF consulting room strategy is worth modelling specifically against your facts. The strategy requires specific expertise — generalist accountants and financial planners typically don't have the SMSF + commercial property + medical practice intersection in their wheelhouse.
Book a free 15-minute consultation to assess whether the strategy suits your specific circumstances. We can model the cash flows, evaluate the property choice, and coordinate the entity setup and lending arrangements.
This article provides general information only and does not constitute personal SMSF, tax, credit, property, or financial product advice. SMSF compliance is strict and breaches have serious consequences. Tax outcomes depend on individual circumstances and current tax law. Lending outcomes are subject to lender criteria. Property values may rise or fall. SMSF investment carries risk including loss of capital. Personal advice from qualified SMSF specialists, registered tax agents, and financial advisers is required before establishing or modifying any SMSF arrangement. MNM Group Financial Services Pty Ltd · ABN 52 934 978 906 · AFSL 503737.