For almost two decades, self-managed super funds have been able to borrow to buy residential investment property through a limited recourse borrowing arrangement, or LRBA. That changed on 10 August 2026. From that date, an SMSF can only use a new LRBA to buy real property if the property is business real property. In practice, new borrowing to buy residential property inside an SMSF has ended.
The change is narrower than some headlines suggested. Existing loans are protected, refinancing is still possible, contracts exchanged before the deadline are covered, and borrowing to buy commercial property used in a business remains available. SMSFs can also still buy residential property without borrowing.
This guide explains exactly what changed, what is grandfathered, the traps to avoid, and the options available to SMSF trustees now.
What’s allowed and what isn’t
| Situation | Position from 10 August 2026 |
|---|---|
| Existing residential LRBA entered into before 10 August 2026 | Unaffected. The loan continues as normal |
| Refinancing an existing LRBA over the same property | Allowed, with the same or a new lender |
| Binding contract exchanged before 10 August 2026, settling later | Protected, even if settlement or the loan happens after that date |
| New LRBA to buy residential property | Not allowed |
| New LRBA to buy business real property | Allowed, but the property must remain business real property for the life of the loan |
| Buying residential property with cash, no borrowing | Still allowed, subject to the usual SMSF rules |
| LRBA to buy assets other than real property | Still allowed, subject to the usual LRBA rules |
What changed and why
The change was made by the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026. The borrowing measure was not in the May Budget. It was added as part of the agreement that allowed the Budget tax package to pass the Senate, and commenced 45 days after Royal Assent, on 10 August 2026.
Under the new rules, where an SMSF enters into an LRBA on or after 10 August 2026 to acquire real property, that property must be business real property. The property must meet that test when the loan is entered into and throughout the life of the loan.
The stated aim was to reduce competition between SMSF investors and other buyers, including first home buyers, in the residential market. SMSF borrowing was a small share of overall residential lending, but it had attracted scrutiny for many years, including in the 2014 Financial System Inquiry.
What’s grandfathered
Existing loans
If your SMSF entered into an LRBA to buy real property before 10 August 2026, the arrangement is not affected. You do not need to sell the property, repay the loan early, or change how the property is used. The property does not need to become business real property.
Refinancing
The ATO has confirmed that maintaining or refinancing a pre-10 August LRBA is not caught by the new rules. It treats refinancing as entering into a new loan contract for the same asset, with either the same lender or a new one. That matters, because it means trustees with existing residential loans are not locked into their current lender.
Contracts exchanged before 10 August
Where an SMSF exchanged a binding contract to buy real property before 10 August 2026, the acquisition is protected even if settlement, or the LRBA itself, happens on or after that date. That includes off-the-plan purchases that may not settle for some time.
Traps for existing borrowers
Grandfathering protects the existing arrangement, not every possible change to it. Trustees should get advice before:
- Borrowing additional amounts. Refinancing is protected, but increasing the borrowing may raise questions about whether a new arrangement has been created.
- Making significant variations. A change to a pre-10 August purchase contract, or a significant change to a loan, could be treated as a new arrangement entered into after the commencement date, and then caught by the ban.
- Changing to a related-party lender. Related-party LRBAs have their own requirements, and a change of lender structure warrants careful review.
- Replacing the asset. Grandfathering applies to refinancing the same asset. Selling the property and buying a different residential property with a new loan would not be protected.
Documentation matters. It is sensible to keep clear records showing when the original arrangement and contract were entered into, and to have any refinancing reviewed before it is completed.
Borrowing for business real property
SMSFs can still use an LRBA to buy business real property. Broadly, this is land and buildings used wholly and exclusively in one or more businesses, such as offices, warehouses, shops, factories, medical and professional suites, and some primary production land.
Business real property is one of the few assets an SMSF can acquire from a related party, such as a member, and lease back to a related business at market rent. That makes it a common strategy for business owners who want their super fund to own their business premises.
Two points need particular care under the new rules:
- It must stay business real property. The property must be used wholly and exclusively in a business for the entire life of the loan. If the use changes, for example if the tenant leaves and the property is converted to residential use, the fund may breach the borrowing rules.
- Mixed-use properties are risky. A shop with a residence above, or a property partly used for business, may not meet the “wholly and exclusively” test. Get specialist advice before buying anything that is not clearly commercial.
Business owners may also be able to move business property into super using the small business CGT concessions. Our guide to small business CGT concessions into super explains how.
Your options now
1. Buy residential property with cash
An SMSF can still buy residential property outright, provided it meets the sole purpose test and other rules. The property cannot be lived in or rented by members or their relatives.
The main challenge is building enough money in the fund. For couples, combining two members’ balances in one SMSF can help, and contribution strategies such as the bring-forward rule may allow larger amounts to be added. Our guides to the bring-forward rule and contributing to super after 67 cover the options.
Holding a single property that makes up most of a fund’s value creates concentration and liquidity risk. The fund still needs cash for expenses, pension payments and, eventually, death benefits.
2. Commercial property for business owners
For people who own a business and its premises, buying the premises through the SMSF, with or without borrowing, remains a legitimate strategy. It needs careful structuring around market rent, leases, insurance and the ongoing business real property test.
3. Unit trusts and property funds
Some SMSFs gain property exposure through unit trusts or listed and unlisted property funds. Related unit trusts that hold residential property must meet strict conditions, including generally not borrowing, so they are not a way around the ban. Listed property trusts provide diversified exposure with more liquidity, but behave differently from direct property.
4. Buy property outside super
Some investors will consider buying residential property in their own names or another structure instead. That brings different tax treatment, including the negative gearing changes for established residential property acquired after 12 May 2026, which restrict losses from being offset against other income from 1 July 2027. Our guide comparing property and super covers the broader trade-offs.
5. Reconsider whether an SMSF is still the right structure
For some people, the ability to borrow for residential property was the main reason for having an SMSF. Without it, the costs and responsibilities of running an SMSF may no longer be justified. Our guides comparing SMSFs and retail funds and choosing the right super fund can help you weigh this up, and our guide on how super fits into your overall financial plan puts the decision in context.
Planning ahead if you hold a geared property
Even though existing loans are protected, SMSF property needs long-term planning:
- Liquidity in retirement. Once members start pensions, the fund must pay minimum amounts each year. A fund with most of its money in one property needs enough cash to meet them. Our guide on whether to draw income from super or investments first covers how retirement income fits together.
- Exit strategy. Plan when the loan will be repaid and how, using contributions, rent or other assets.
- Death and incapacity. If a member dies, the fund may need to pay out their benefit, which can force the sale of property. Our guide to death benefit nominations covers how benefits are paid.
- Large balances. Members with very large balances should consider how property values interact with the Division 296 rules. Our guide to Division 296 explains the thresholds.
Where professional advice adds value
The new rules are simple to state but technical to apply. Whether an arrangement is grandfathered, whether a refinance or variation creates a new arrangement, and whether a property is business real property can all turn on detail. The consequences of getting it wrong include breaching the borrowing rules and ATO compliance action.
A super adviser can review your existing SMSF arrangements, confirm what is protected, plan any refinancing carefully, and help you decide whether to stay with direct property, move to commercial property, diversify, or reconsider your SMSF altogether. We work alongside your SMSF accountant, auditor and lawyer, who should review the legal and compliance aspects of any transaction.
If you have an SMSF with property, or were planning to buy property through super, our superannuation advisers in Adelaide can help you work through your options.
Frequently asked questions
Can my SMSF still borrow to buy residential property?
Not under a new arrangement. From 10 August 2026, an SMSF can only use a new limited recourse borrowing arrangement to buy real property if the property is business real property. SMSFs can still buy residential property with cash.
What happens to my existing SMSF property loan?
Nothing. Limited recourse borrowing arrangements entered into before 10 August 2026 are unaffected. You do not need to sell the property or repay the loan, and the property does not need to become business real property.
Can I refinance my existing SMSF loan after 10 August 2026?
Yes. The ATO has confirmed that refinancing a pre-10 August LRBA is not caught by the new rules. It treats refinancing as entering into a new loan contract for the same asset, with the same or a new lender. Get advice before increasing the loan or making other significant changes.
Can my SMSF still borrow to buy commercial property?
Yes, if the property is business real property, meaning it is used wholly and exclusively in one or more businesses. The property must meet that test when the loan is entered into and for the entire life of the loan.
What is business real property?
Broadly, business real property is land and buildings used wholly and exclusively in one or more businesses, such as offices, shops, warehouses and factories, along with some primary production land. Residential property and mixed-use properties generally do not qualify.
I exchanged contracts before 10 August but settle later. Am I affected?
No. Where an SMSF exchanged a binding contract to buy real property before 10 August 2026, the acquisition is protected even if settlement or the loan occurs on or after that date. Avoid significant variations to the contract, which could be treated as a new arrangement.
Can my SMSF buy residential property without borrowing?
Yes. SMSFs can still buy residential property with cash, provided the investment meets the sole purpose test and other rules. Members and their relatives cannot live in or rent the property.
General advice warning. This article contains general information only and does not take into account your objectives, financial situation or needs. It is not legal or tax advice, and SMSF property transactions should be reviewed by an SMSF specialist accountant and lawyer. ATO guidance on the 2026 changes may be updated. You should consider whether the information is appropriate for you and seek personal financial, legal and tax advice before acting on any of it. Money Path Pty Ltd is a Corporate Authorised Representative (No. 001306822) of Australia National Investment Group, AFSL 522028.
