The SMSF borrowing changes are now law. The restriction on new limited recourse borrowing arrangements for residential property commenced on 10 August 2026.
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. It amended the limited recourse borrowing arrangement rules so that, for a new LRBA involving real property, the asset must be business real property within the meaning of section 66 of the Superannuation Industry (Supervision) Act 1993. In practice, this generally prevents SMSFs from using new LRBAs to acquire ordinary residential investment property.
The law protects certain arrangements connected with the period before 10 August 2026. This includes borrowing arrangements entered into before that date, qualifying refinancing of those borrowings, and borrowings for an asset acquired under an arrangement entered into before that date, even if settlement occurs later. If your purchase or borrowing began before 10 August 2026, review the documents and obtain professional advice about whether the transitional protection applies.
Summary Of Key Terms For SMSF Borrowing And Limited Recourse Borrowing Arrangements
Before looking at the SMSF borrowing changes in detail, it helps to know the main terms used in this debate:
SMSF: A self-managed super fund is a private super fund run by its members. Trustees must follow super laws and make choices that support the fund’s retirement savings purpose.
LRBA: A limited recourse borrowing arrangement is a loan structure that lets an SMSF borrow money to buy one asset, such as property. If the loan defaults, the lender’s claim is usually limited to that asset.
Residential property: Residential property is property used for housing. This includes houses, units, townhouses and apartments.
Commercial property: Commercial property is property used for business. This includes offices, warehouses, shops and industrial units.
Transitional protection: The new law preserves certain pre-commencement borrowing and acquisition arrangements, including qualifying refinancing.
Business real property: Broadly, this is real property used wholly and exclusively in one or more businesses. The statutory definition and related rules determine whether a particular property qualifies.
These terms matter because the enacted changes generally prevent new residential property borrowing through LRBAs while preserving certain arrangements connected with the period before 10 August 2026. The law does not ban every type of SMSF property investment.
What Are The SMSF Borrowing Changes?
The SMSF borrowing changes are contained in Schedule 5 to the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and commenced on 10 August 2026.
Since that date, real property acquired through a new LRBA must be business real property within the meaning of section 66 of the Superannuation Industry (Supervision) Act 1993. An SMSF generally cannot set up a new LRBA to buy an ordinary residential investment property, such as a house, unit, townhouse or apartment.
The law does not ban all SMSF property investment. An SMSF may still acquire property without borrowing if the purchase complies with superannuation law and the fund’s investment strategy. Certain pre-10 August 2026 borrowing and acquisition arrangements are also protected.
New LRBAs may still be available for real property that qualifies as business real property. A commercial label alone does not decide this issue. SMSF trustees should obtain advice about whether the property satisfies the statutory test before signing contracts or changing their investment plan.
Why Is The Government Changing SMSF Borrowing Rules For Tax Advantaged Investment Properties?
The Australian federal government says the SMSF borrowing changes aim to reduce risk in the superannuation funds system and support its wider tax reform package.
Treasurer Jim Chalmers said super funds are generally prohibited from borrowing money to invest. LRBAs created an exception for self-managed superannuation funds. The enacted change narrowed that exception for new arrangements involving real property.
Prime Minister Anthony Albanese has linked the reform package to first-home buyers, workers and a fairer tax system. The Albanese government also says earlier reviews by financial regulators raised concerns about LRBAs. These include the 2014 Murray Financial System Inquiry and later warnings from the Council of Financial Regulators.
The Greens supported the tax reform package after securing an amendment to close new SMSF residential property borrowing through LRBAs. From the Government’s view, the change is narrow because SMSF residential borrowing makes up a small share of home lending.
For property owners, the key issue is not the politics or promotional messages. The main point is how the law affects new residential borrowing, protected arrangements and any property purchase that was underway before 10 August 2026.
Who Is Affected By The SMSF LRBA Restriction?
The SMSF LRBA restriction affects property owners in different ways. The impact depends on the type of property and whether a relevant borrowing or acquisition arrangement was entered into before 10 August 2026.
Investor Situation | Likely Impact | What To Check |
|---|---|---|
Residential SMSF LRBA entered into before 10 August 2026 | The arrangement remains covered by the LRBA exception, subject to the existing rules. | Keep loan papers, trust records, settlement statements and property records organised. |
Residential acquisition arranged before 10 August 2026 | A related borrowing may be protected if the asset is acquired under an arrangement entered into before commencement, even if settlement occurs later. | Check the acquisition contract and other documents showing when the arrangement was entered into. |
Refinancing an earlier residential SMSF borrowing | The new restriction does not apply to an arrangement that maintains or refinances a borrowing under an arrangement entered into before commencement. | Confirm the new arrangement is genuinely maintaining or refinancing the earlier borrowing. |
New residential SMSF purchase using a loan | An SMSF generally cannot establish a new LRBA for ordinary residential investment property from 10 August 2026. | Review the strategy with qualified advisers before making a commitment. |
SMSF buying residential property with cash | The restriction concerns LRBAs, not all SMSF property ownership. | Confirm the fund has enough cash and a compliant investment strategy. |
SMSF borrowing for business real property | A new LRBA may still be available if the real property satisfies the business real property test. | Do not rely only on a commercial property label. Confirm the statutory classification before acting. |
How Does The Transitional Protection Work For SMSF Borrowing?
Schedule 5 commenced on 10 August 2026, the 45th day after Royal Assent. The 45 days were the period before commencement, not an additional grace period after the restriction began.
The enacted transitional rules preserve three categories: a borrowing arrangement entered into before 10 August 2026; an arrangement that maintains or refinances a borrowing under an arrangement entered into before that date; and a borrowing relating to an asset acquired under an arrangement entered into before that date, even if settlement occurs later.
A property search, an early enquiry or progress towards finance is not itself one of the statutory tests. Whether a particular contract or collection of documents amounts to an arrangement entered into before commencement depends on the facts. Trustees should obtain professional advice and keep evidence of the relevant borrowing and acquisition arrangements.
Useful records may include:
Signed contracts
Loan applications
Formal loan approvals
Lender emails
Adviser emails
Conveyancer updates
Settlement statements
Trustee meeting notes
If your SMSF is already part-way through a purchase, speak with your accountant, SMSF adviser, lender and conveyancer before making a final choice.
Can SMSFs Still Invest In Commercial Property?
SMSFs can still invest in property. However, since 10 August 2026, the enacted borrowing restriction limits how funds can use new LRBAs to acquire real property.
The restriction applies to LRBAs. It does not stop an SMSF from buying residential property with available fund cash, as long as the purchase complies with superannuation law and the fund’s investment strategy.
A new LRBA may still be available for real property that qualifies as business real property. Broadly, this means real property used wholly and exclusively in one or more businesses. This may matter for business owners who use an SMSF to buy qualifying business premises and lease them to a related business under strict SMSF rules.
Property owners should also remember that SMSF property investment comes with ongoing duties. The property must support the fund’s retirement savings purpose, fit the investment plan and follow related-party rules. Trustees should get advice before buying, selling, refinancing or changing how the property is used.
What Should SMSF Trustees And Property Owners Do Now?
Property owners should treat the SMSF borrowing changes as a reason to review their plans, not rush into a choice.
If your SMSF already owns property, check your current loan papers, trust records and investment strategy. A borrowing arrangement entered into before 10 August 2026 remains covered by the LRBA exception, subject to the existing rules, but your records should still be complete and easy to access.
If your SMSF began a residential property purchase or borrowing process before 10 August 2026, check whether the relevant borrowing or acquisition arrangement was entered into before that date. Contract timing and the legal effect of the documents matter more than whether a general process had started.
Before making a new commitment, SMSF trustees should:
Review the fund’s investment plan
Confirm whether the property is residential or commercial
Check whether the purchase needs a loan
Keep written records of advice and approvals
Speak with an SMSF accountant or adviser
Confirm loan options with the lender
Avoid relying on headlines or social media posts
The enacted rules affect borrowing options, transitional eligibility and record-keeping. Clear advice can help trustees avoid costly mistakes.
Tax, Depreciation And Record-Keeping Considerations For SMSF Investment Properties
The enacted SMSF borrowing changes do not remove the need for strong property-related tax records. If your SMSF already owns an investment property, you still need clear documents to support income, expenses, depreciation claims and future choices.
A tax depreciation schedule can help identify deductions for the building and eligible assets. This can include capital gains tax deductions for the structure and depreciation for eligible plant and equipment. The amount depends on the property type, age, use and ownership details.
SMSF trustees should keep organised records for:
Purchase contracts
Settlement statements
Loan documents
Holding trust documents
Rental income records
Repair and maintenance invoices
Renovation and improvement invoices
Depreciation schedules
Insurance and council rate notices
Adviser and accountant emails
These records can matter at tax time, during property reviews or when the fund later sells the property. They also help your accountant separate repairs from improvements, support depreciation claims, and maintain a clear audit trail for the SMSF.
FAQs About SMSF Borrowing Changes
Are SMSF Property Loans Being Banned?
Since 10 August 2026, SMSFs generally cannot establish new limited recourse borrowing arrangements for ordinary residential investment property. The law does not ban every SMSF property loan or every SMSF property purchase.
Will Existing Limited Recourse Borrowing Arrangements Be Affected?
A borrowing arrangement entered into before 10 August 2026 continues to be covered by the LRBA exception, subject to the existing rules. The law also protects an arrangement that maintains or refinances a borrowing under an arrangement entered into before that date.
Can An SMSF Still Buy Residential Investment Properties?
An SMSF may still be able to buy residential property using available fund cash if the purchase complies with superannuation law and the fund’s investment strategy. The restriction concerns LRBAs for real property that is not business real property.
Can An SMSF Still Borrow To Buy Commercial Property?
An SMSF may still use a new LRBA for real property that qualifies as business real property. Trustees should not assume every property marketed as commercial satisfies the statutory test and should obtain advice before relying on loan approval or signing a contract.
What Transitional Protection Applies To SMSF LRBAs?
The law commenced on 10 August 2026, the 45th day after Royal Assent. It protects borrowing arrangements entered into before that date, qualifying refinancing of those borrowings, and borrowings for assets acquired under arrangements entered into before that date, even where settlement happens later.
What Should Property Owners Do Before Making A Personal Finance Decision?
Property owners should review their contracts, loan papers, investment plan and advice before acting. SMSF trustees should speak with their accountant, SMSF adviser, lender and conveyancer before making major property decisions.
Key Takeaways From The SMSF Borrowing Changes And Broken Promise Debate
The SMSF borrowing changes are now in force and change how some property owners can invest through superannuation funds. From 10 August 2026, real property acquired through a new LRBA must be business real property. The transitional rules preserve certain arrangements connected with the period before commencement, and the law does not stop every type of SMSF property investment.
For property owners, the key issues are timing, property type, loan status and records. If your SMSF already owns property, keep your tax, loan and purchase records in order. If your SMSF plans a new property purchase, get advice before signing contracts or relying on loan approval.
Duo Tax helps SMSF property owners prepare independent SMSF property valuation reports that support clear, compliant property records. If your SMSF owns an investment property, a valuation report can help your accountant, auditor or adviser assess the property’s market value and maintain a stronger record trail.
