The rules around borrowing to purchase residential property through a self-managed super fund (SMSF) changed on 10 August 2026.
From this date, SMSFs can generally no longer enter into new Limited Recourse Borrowing Arrangements (LRBAs) to purchase residential property. Existing arrangements are protected, refinancing remains possible and SMSFs can continue to use LRBAs for eligible business real property i.e. the asset must be wholly and exclusively used in one or more businesses at the time of the LRBA.
For Week 3 of The Budget Breakdown, we’re looking at what has changed, what happens to existing SMSF property loans and what trustees considering property investment need to know.
1. What is changing?
As part of the Government’s broader tax reform package, an amendment was agreed that prohibits SMSFs from entering into new LRBAs to acquire residential property.
The amendment formed part of an agreement between the Federal Government and the Greens to secure passage of the broader tax reform legislation on 26 June 2026.
Existing SMSF borrowing arrangements are grandfathered and can continue under the existing rules.
What is an LRBA?
A Limited Recourse Borrowing Arrangement (LRBA) allows an SMSF to borrow money to acquire an asset, most commonly property.
It differs from a conventional loan because, if the SMSF defaults, the lender’s ability to recover its money is generally limited to the asset purchased under the arrangement, rather than the fund’s other assets.
Until now, LRBAs have provided an exception to the general rule that prevents superannuation funds from borrowing.
Why has the Government made the change?
The Government has said the measure is intended to reduce the risks associated with borrowing within superannuation funds. The Greens have also argued that restricting leveraged SMSF investment in residential property could reduce competition in the housing market.
While SMSF borrowing represents a relatively small proportion of the overall residential lending market, the change is significant for trustees who were considering residential property as part of their SMSF investment strategy.
2. When do the new rules apply?
When did the change commence?
The new rules commenced on 10 August 2026.
Transitional arrangements protect certain transactions that were already underway before this date. Where an LRBA was entered into before 10 August 2026, the arrangements can generally continue. This can include a property purchase that settles after 10 August where the relevant arrangement was entered into before commencement.
Simply establishing an SMSF or beginning to arrange finance before 10 August does not, on its own, mean the transitional arrangements apply. If your transaction falls around the commencement date, it’s important to seek advice about your particular circumstances.
What if a contract was already signed?
The key distinction is whether a contract to purchase the residential property was entered into before the new rules commenced.
Where a contract of sale was signed before the commencement date, the transitional arrangements appear intended to allow the purchase to proceed, even if settlement occurs afterwards.
Simply having established an SMSF or started arranging finance before the commencement date does not appear to be sufficient if a property purchase contract had not yet been entered into.
For transactions around the cut-off date, trustees should seek advice about their specific circumstances rather than assume the transitional arrangements apply.
3. What about existing SMSF property loans?
Will existing SMSF loans be affected?
No. Existing residential property LRBAs are grandfathered and can continue under the existing rules.
The changes are aimed at new borrowing arrangements, rather than requiring SMSFs to unwind existing residential property investments.
Can an existing SMSF loan be refinanced?
Yes. The announced arrangements allow existing residential property LRBAs to be refinanced.
However, lender policies and requirements may differ, so SMSF trustees considering refinancing should check the current position before making any changes.
4. What is and isn’t affected?
Can an SMSF still borrow to purchase commercial property?
Potentially, yes.
The restriction relates to residential property. SMSFs can continue to use LRBAs to acquire business real property, as defined under superannuation law.
Importantly, not every non-residential property will automatically meet that definition. Whether a particular property qualifies will depend on the circumstances, so appropriate legal, accounting and financial advice is important before proceeding.
Do the changes affect SMSF tax concessions?
No. The change relates to borrowing arrangements, not the existing tax treatment of superannuation investments. The Government has stated that existing superannuation tax concessions are not altered by this measure.
5. What does this mean for SMSF trustees?
For anyone who already holds residential property within an SMSF under an LRBA, the key message is that existing arrangements can continue.
The more significant change is for people considering a new residential property purchase through their SMSF. Under the new rules, establishing an SMSF or arranging finance will not provide a pathway to a new residential property LRBA.
There are also important distinctions between residential property, business real property and existing arrangements, so the rules shouldn’t be considered in isolation.
If you are considering:
- purchasing property through an SMSF
- refinancing an existing SMSF property loan
- purchasing commercial property through your fund
- reviewing your SMSF investment strategy
it is important to understand how the new borrowing rules apply before taking action.
Seek advice
SMSF property investment involves superannuation, tax, lending and legal considerations. Speak with the Financially Sorted team about your circumstances before entering into or changing an SMSF property arrangement.