New Restrictions on SMSF Property Borrowing from 10 August 2026

The Government has introduced significant changes to the way Self Managed Superannuation Funds (SMSFs) can use Limited Recourse Borrowing Arrangements (LRBAs) to acquire property.

From 10 August 2026, SMSFs will no longer be permitted to enter into a new LRBA to acquire residential property. Instead, any new LRBA used to acquire real property must be for business real property (BRP). Existing arrangements and certain transactions already underway will continue to be protected under transitional rules.

What has changed?
Historically, SMSFs have been able to borrow under an LRBA to acquire both residential and commercial property, provided strict superannuation rules were satisfied.

Under the new legislation, any new LRBA entered into after 10 August 2026 can only be used where the underlying real property qualifies as business real property. In practical terms, this means most residential investment properties can no longer be acquired using borrowed funds within an SMSF.

What is business real property?
Business real property generally refers to land and buildings used wholly and exclusively in one or more businesses. Common examples include:

  • Commercial office buildings;
  • Warehouses and industrial premises;
  • Retail shops;
  • Medical suites;
  • Business premises occupied by a related or unrelated operating business.

Trustees should be aware that determining whether a property qualifies as business real property can be complex, particularly where there is mixed use or residential components attached to the property. Specialist advice should be obtained where there is any uncertainty.

Existing LRBAs are protected
Importantly, the changes are not retrospective.

SMSFs that have already entered into an LRBA before 10 August 2026 will generally be able to continue under the existing rules. The legislation also preserves the ability to maintain or refinance an existing LRBA after that date.

This means trustees will not be required to sell residential property currently held under a complying LRBA simply because of the law change.

Transitional arrangements
The legislation contains grandfathering provisions designed to protect transactions already in progress.

Current ATO guidance indicates that where a binding contract to acquire property is entered into before 10 August 2026, the acquisition may still proceed under the existing LRBA rules, even if settlement occurs after that date.

For trustees seeking to rely on the transitional provisions, it is essential that:

  • Contracts are properly executed before the commencement date;
  • Any required holding trust structures are established correctly; and
  • Documentation supporting the arrangement is completed on time.

Trustees midway through a property purchase should seek advice immediately to ensure they do not inadvertently fall outside the grandfathering rules.

What does this mean for SMSF trustees?
While the ability to borrow to purchase residential property will be significantly restricted, SMSFs can still:

  • Continue to hold existing residential properties acquired under grandfathered LRBAs;
  • Refinance eligible grandfathered LRBAs;
  • Purchase residential property outright using available SMSF cash;
  • Use LRBAs to acquire qualifying business real property.

The changes are likely to reduce the attractiveness of leveraged residential property strategies within SMSFs and may prompt trustees to reassess their long-term investment and retirement planning objectives.

For more information about the LRBA changes and to discuss your personal circumstances, please get in touch with our SMSF Specialists on 1300 363 866.




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General Advice Warning
The information provided in this article is for general information purposes only and is not intended to and does not constitute formal taxation, financial or accounting advice. McConachie Stedman does not give any guarantee, warranty or make any representation that the information is fit for a particular purpose. As such, you should not make any investment or other financial decision in reliance upon the information set out in this correspondence and should seek professional advice on the financial, legal and taxation implications before making any such decisions.