July 2026
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Significant Changes to SMSF Residential Property Borrowing On 26 June 2026, the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 received Royal Assent following its passage through both Houses of Parliament. Included within the legislation are amendments that significantly restrict the ability of Self-Managed Superannuation Funds (SMSFs) to borrow to purchase residential property. The amendments commence 45 days after Royal Assent, meaning that from 10 August 2026, SMSFs will no longer be permitted to enter into new Limited Recourse Borrowing Arrangements (LRBAs) to acquire residential property. What is an LRBA An LRBA is a borrowing arrangement that allows an SMSF to acquire an asset using borrowed funds, while limiting the lender’s recourse to the asset acquired rather than the broader assets of the SMSF. Since their introduction, LRBAs have been a popular strategy for SMSFs seeking to invest in direct property. What is Changing? From 10 August 2026, SMSFs will no longer be able to establish new LRBAs to acquire residential property. Borrowing will instead be limited to assets that satisfy the definition of business real property (BRP) under the superannuation legislation.
Importantly: • Existing residential property LRBAs will be grandfathered and can continue under current arrangements. • Business real property acquisitions through LRBAs remain permissible. • SMSFs may still purchase residential property where sufficient cash is available within the fund, as the restriction applies to borrowing, not ownership of residential property itself. What is Business Real Property (BRP)? Business real property generally means land and buildings used wholly and exclusively in carrying on a business. However, there may still be some uncertainty in applying this definition, particularly to vacant land or newly constructed residential property held as trading stock by a developer. Earlier ATO guidance has confirmed examples of business real property to include offices, warehouses, factories, medical suites, primary production properties, vacant land and developers’ property stock. Under the new rules, SMSFs may still use an LRBA to acquire business real property, provided all other superannuation borrowing requirements are met. What Does This Mean for SMSF Trustees? Trustees who currently hold residential property through an existing LRBA will generally not be affected by the changes, provided the arrangement was established before 10 August 2026. The legislation also preserves the ability to maintain or refinance an existing LRBA. The greatest impact will be on trustees who were intending to acquire residential or mixed-use property