New legislation ends SMSF borrowing for residential property

New legislation ends SMSF borrowing for residential property

New restrictions on self-managed super fund limited recourse borrowing arrangements commenced on 10 August 2026. From that date, an SMSF generally cannot enter into a new LRBA to acquire residential property. Borrowing remains available for eligible business real property, subject to superannuation law, the fund's governing documents and lender requirements.

What changed on 10 August 2026

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. Schedule 5 commenced on the 45th day after Royal Assent - 10 August 2026 - and amended the limited recourse borrowing rules in the Superannuation Industry (Supervision) Act 1993.

For an LRBA involving real property entered into on or after 10 August 2026, the property must be business real property within the meaning of section 66 of the SIS Act. The ATO describes business real property generally as land and buildings used wholly and exclusively in one or more businesses.

Standard residential property will therefore generally no longer qualify for a new SMSF LRBA. An SMSF may still be able to acquire residential property without borrowing, provided the acquisition and investment otherwise comply with superannuation law and the fund's investment strategy.

What happens to existing and pre-commencement arrangements?

The legislation contains transitional protections. Subject to the precise facts and documentation, the new restriction does not apply to the extent that:

• the borrowing arrangement was entered into before 10 August 2026;
• a later arrangement maintains or refinances borrowing under an arrangement entered into before commencement; or
• the related asset is acquired under an arrangement entered into before commencement, even if settlement occurs on or after 10 August 2026.

Trustees should not assume that a transaction is protected solely because planning, an SMSF establishment or a finance application began before 10 August. The relevant arrangements and dates should be confirmed by an appropriately qualified SMSF legal or tax adviser before a trustee relies on the transitional rules.

Commercial property borrowing remains available

An SMSF may still use an LRBA to acquire real property that satisfies the business real property test. This can include eligible commercial or industrial premises used wholly and exclusively in a business.

Not every property described as commercial will automatically qualify. Mixed-use property, vacant land, property with a residential component and arrangements involving related parties require careful review. Eligibility should be confirmed before a contract, bare trust or finance application is finalised.

How 3LANE Finance can help

3LANE Finance compares SMSF lending options across a broad panel of banks, non-bank lenders and specialist funders for eligible commercial property and business-premises transactions. We can also assist with refinancing an existing LRBA where the transaction falls within the transitional rules and remains acceptable under the relevant lender's policy.

Our role is to arrange and structure the finance. We work alongside your accountant, licensed financial adviser and SMSF solicitor, who should confirm the fund structure, investment strategy, business real property status and legal and tax treatment before you commit to the transaction.

Considering an SMSF commercial property purchase or reviewing an existing LRBA? Speak with 3LANE Finance about borrowing capacity, lender appetite, loan structure and the information required for assessment. Contact enquiries@3lane.com.au or 0402 110 025.

Frequently asked questions

Can my SMSF still borrow to buy residential property?

Generally, not under a new LRBA entered into on or after 10 August 2026. Real property acquired under a new LRBA must satisfy the business real property test. Standard residential investment property will generally not meet that test.

When did the SMSF residential property borrowing restriction commence?

The Act received Royal Assent on 26 June 2026. Schedule 5 commenced 45 days later, on 10 August 2026.

Can an SMSF still borrow to buy commercial property?

Potentially. The property must qualify as business real property when the LRBA is entered into, and the transaction must satisfy superannuation law, the fund's governing documents and lender requirements. Independent legal, tax and financial advice should be obtained before proceeding.

What happens if the property contract was entered into before 10 August 2026 but settlement occurs later?

The transitional provisions may protect a borrowing arrangement where the related asset is acquired under an arrangement entered into before commencement, even if settlement occurs later. Trustees should obtain advice confirming that their particular contract and borrowing arrangements meet the legislative requirements.

Will my existing SMSF residential property loan be cancelled?

No. A borrowing arrangement entered into before 10 August 2026 can continue. The legislation also provides for qualifying refinancing of pre-commencement borrowing arrangements, although any refinance remains subject to lender availability, policy and approval.

Can mixed-use property or vacant land qualify as business real property?

It depends on the property's use and the proposed arrangement. These assets should not be assumed to qualify. Obtain specialist SMSF legal and tax advice before entering into a contract or LRBA.

Primary sources

Federal Register of Legislation: Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (https://www.legislation.gov.au/C2026A00049/asmade/text)

Australian Taxation Office: Changes to limited recourse borrowing arrangements (https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/smsf-investing/restrictions-on-smsf-investments/smsf-borrowing-restrictions/limited-recourse-borrowing-arrangements/changes-to-limited-recourse-borrowing-arrangements)

General information only. This content does not constitute legal, tax or financial advice. SMSF trustees should obtain advice from appropriately qualified professionals before entering into a property acquisition or borrowing arrangement.