SMSF residential property borrowing changes: what the new rules mean for your fund

The rules governing how self-managed superannuation funds (SMSFs) can borrow to acquire residential property have changed. 

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026 and the new rules apply from 10 August 2026. From that date, SMSFs will generally no longer be able to enter into a new LRBA to acquire residential property. 

Importantly, this is not a general ban on SMSF borrowing. Existing residential property LRBAs remain grandfathered, and SMSFs may continue to use LRBAs for eligible assets that satisfy the SIS Act requirements, including business real property. 

What has changed? 

The amendments change the operation of section 67A of the SIS Act by restricting which real property assets can be acquired using an LRBA. 

From 10 August 2026: 

• new LRBAs can generally no longer be used to acquire residential property; 

• existing residential property LRBAs remain unaffected; 

• refinancing of eligible grandfathered arrangements continues to be permitted, subject to the legislative requirements; 

• LRBAs remain available for business real property; and 

• LRBAs for other eligible assets, such as shares and units in a unit trust, are not affected. 

The reforms restrict the use of borrowing to acquire residential property. They do not prevent SMSFs from owning residential property, nor do they remove LRBAs altogether. 

What arrangements are protected? 

The legislation operates prospectively and includes transitional provisions. 

Broadly: 

• existing LRBAs remain in place; 

• refinancing of existing grandfathered arrangements continues to be permitted subject to satisfying the relevant conditions; and 

• new arrangements entered into before 10 August 2026 may continue to proceed even where settlement occurs after commencement. 

For trustees currently progressing an SMSF residential property acquisition using borrowings, timing is now important. 

Current commentary indicates that contracts entered into before 10 August 2026 are intended to be protected under the grandfathering provisions. However, trustees should avoid treating the property contract as the only relevant consideration. 

Where possible, the broader LRBA process should be progressed as far as practicable before commencement, including: 

• execution of the property contract; 

• finance approval; 

• establishment of the holding trust / bare trust; 

• if using a related party loan all supporting LRBA documentation in compliance with PCG2016/5. 

Where do opportunities remain? 

While the changes restrict future SMSF borrowing for residential property, they do not remove the ability for SMSFs to borrow altogether. 

Importantly, SMSFs may still be able to use an LRBA to acquire business real property, provided the arrangement satisfies the SIS Act requirements.  LRBAs also remain available for other eligible asset classes, such as shares and units in a unit trust. 

This places greater importance on understanding the definition of business real property under section 66 of the SIS Act. 

Business real property is not determined solely by whether an asset appears commercial or residential, nor by its zoning. The test focuses on how the property is actually used and whether it is used wholly and exclusively in one or more businesses. 

That distinction can create very different outcomes. 

For example, a property with residential characteristics may still qualify where it is genuinely used wholly and exclusively in carrying on a business. By contrast, a mixed-use property that combines business and private residential use may not satisfy the definition. 

As a result, trustees and advisors may need to place greater emphasis on asset classification, the use of the property, ownership structure and documenting the commercial purpose of an arrangement before proceeding. Each opportunity should be assessed on its own facts, with careful consideration of the legislative requirements. 

Can an SMSF still invest in residential property? 

Yes. 

The new law does not prevent an SMSF from owning residential property. Rather, it restricts the use of a new LRBA to acquire residential property. 

SMSFs may continue to acquire residential property without borrowing, provided the acquisition complies with the SIS Act and remains consistent with the fund’s investment strategy. 

Existing LRBAs continue 

Existing residential property LRBAs are not affected by the new rules, provided they continue to comply with the SIS Act. 

Trustees should continue to ensure their arrangements remain appropriately structured and administered, including maintaining a genuine limited recourse borrowing arrangement, complying with loan terms, ensuring assets continue to be held correctly through the holding trust structure and, where applicable, ensuring related-party lending arrangements remain on arm’s length terms. 

Trustees considering refinancing an existing LRBA should also ensure the arrangement satisfies the grandfathering provisions before proceeding. 

Looking ahead 

The new rules narrow the circumstances in which an SMSF can borrow to acquire residential property, but they do not remove borrowing altogether. 

Understanding the commencement rules, the transitional provisions and the definition of business real property will become increasingly important when assessing what opportunities remain. 

If you have an SMSF property acquisition underway or are considering one, now is the time to seek advice. Speak to your advisor about navigating the commencement rules and structuring your strategy to take advantage of what remains available. 

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