The Door Closes on SMSF Residential Borrowing

Eollyn Cortes, Sagang Chung and Helen Jeon
3 days ago
3 min read

From 10 August 2026, self-managed super funds (SMSFs) can no longer enter a new limited recourse borrowing arrangement (LRBA) to buy residential property. The ban follows the passage of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026. Under the Act, the new rules commence 45 days after Royal Assent – landing on 10 August 2026.

What is Changing

An LRBA is a borrowing arrangement that allows an SMSF to borrow to acquire an asset while limiting the lender’s recourse to the acquired asset itself. This structure has commonly been used by SMSFs to acquire investment properties while preserving the fund’s other investments.

From 10 August 2026, where an SMSF enters into an LRBA on or after that date to acquire real property, that property must be business real property broadly, land and buildings used wholly and exclusively in one or more businesses. Therefore, SMSFs will no longer be able to enter into a new LRBA to acquire residential property.

This restriction applies regardless of whether:

the lender is a bank, a non-bank lender, or a related party; or
the property is an established dwelling or a newly constructed property.

What is Not Changing

Existing arrangements are unaffected – Residential property LRBAs entered into before 10 August 2026 can continue as normal. There is no forced sale, loan-to-value ratio reset, or compliance issue arising solely from these reforms.
Refinancing remains available – Existing residential property LRBAs may be refinanced on substantially the same terms. However, an arrangement involving a top-up, equity release, or a change to the underlying security may be treated as a new LRBA and therefore become subject to the new restrictions.
Cash purchases remain permitted – SMSFs may continue to acquire residential property without borrowing. The reform restricts only the use of LRBAs to acquire residential property.
Business real property can still be acquired using an LRBA – LRBAs remain available for the acquisition of business real property, including commercial premises, factories, warehouses, offices, and certain primary production properties, provided the relevant superannuation requirements are met.

Transitional Rules: Timing Matters

The legislation preserves arrangements where a binding contract to acquire residential property was entered into before 10 August 2026 even if settlement occurs after that date or the LRBA documentation is finalised after that date. A trustee who exchanges before the commencement date can still proceed to settlement under the old rules.

Practical Notes for SMSF Trustees

If you are planning a residential property purchase through an SMSF, urgently determine whether you can satisfy the transitional arrangements before 10 August 2026 bearing in mind the timeframes for lender approvals, bare trust establishment and legal documentation.
If you have an existing residential LRBA, no immediate action is required by the change itself. However, if you are considering refinancing or restructuring an existing LRBA, you should consider whether the proposed changes would inadvertently create a new arrangement subject to the new rules.
If you are acquiring commercial property, the ability to use an LRBA to acquire business real property remains available subject to meeting the definition of business real property and complying with the broader superannuation requirements.