New SMSF Property Borrowing Restriction from 10 August 2026
Status at 5 September 2026: Enacted and commenced. Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Royal Assent 26 June 2026) commenced on 10 August 2026. Scope: New limited recourse borrowing arrangements involving real property must be for business real property. Important context: This was a Senate amendment agreed after the Budget, not a measure announced in the 12 May 2026 Federal Budget.
SMSFs can borrow only in limited circumstances using a limited recourse borrowing arrangement, or LRBA. From 10 August 2026, a new LRBA can acquire real property only when it is business real property.
In practical terms, a new SMSF borrowing to buy an ordinary house or apartment for residential letting will generally no longer be available. Commercial and other qualifying business property may still be possible, but all the existing SMSF compliance requirements remain.
What is an LRBA?
An LRBA uses borrowed money to acquire a permitted asset held through a separate holding arrangement. On default, the lender’s rights are generally limited to that asset rather than the SMSF’s other assets.
The investment must still comply with the deed, strategy, sole-purpose, related-party and arm’s-length rules.
What changed on 10 August 2026?
The legislation added a condition to section 67A of the Superannuation Industry (Supervision) Act 1993, the section that permits SMSF borrowing. Where the LRBA asset is real property, it must be business real property within the statutory meaning.
The ATO describes business real property as land and buildings used wholly and exclusively in one or more businesses. There are detailed rules and limited exceptions, so mixed-use property and property with private or residential use need close attention.
An office, warehouse, shop or qualifying farming property may meet the test. A standard residential rental property ordinarily will not qualify merely because it earns rent.
Other asset types remain subject to the broader LRBA and investment rules.
Are existing SMSF property loans grandfathered?
Yes, the Act contains important transitional protection.
The condition does not disturb a borrowing arrangement entered into before 10 August 2026. It also protects qualifying refinancing and an asset acquired under a pre-commencement acquisition arrangement, even if settlement occurs later.
That does not make every discussion, loan pre-approval or unsigned proposal a binding pre-commencement arrangement. The exact contracts, dates and legal obligations need to be checked. Refinancing must also genuinely maintain or refinance the protected borrowing; adding a new acquisition or materially changing the arrangement may produce a different result.
For new arrangements caught by the rules, expect the property to need to keep meeting the business real property test for as long as the borrowing is maintained or refinanced — so a change of use (for example, converting part of a shop to a flat) needs advice before it happens.
A practical example
A hypothetical fund, the Blue Gum SMSF, was considering two purchases in August 2026.
For the first, the trustee had signed a binding residential purchase contract and entered the borrowing arrangement before 10 August, with settlement due in September. Transitional protection may apply, but the documents must be reviewed.
For the second, the trustee had only obtained indicative finance before 10 August and signed a contract for a residential rental house on 15 August. A new LRBA for that ordinary residential property would not meet the new business-real-property condition.
If it were instead a warehouse used wholly and exclusively in a genuine business, an LRBA might still be available, subject to all other requirements.
What SMSF trustees should do now
If your SMSF has or was planning an LRBA:
Gather the purchase contract, loan agreement, holding-trust deed, trustee resolutions and settlement correspondence.
Confirm when each legally relevant arrangement was entered into — not simply when finance was discussed.
Obtain advice before refinancing, varying security or changing the acquired asset.
For business property, document how the property is used and monitor that use over time.
Review liquidity, insurance and the fund’s ability to service the loan without relying on future contributions.
Avoid signing a property contract in the SMSF’s name before the legal structure has been checked.
LRBA mistakes can be expensive to unwind. Align your accountant, adviser, lender and SMSF lawyer before signing.
Frequently asked questions
Can my SMSF still borrow to buy a residential investment property?
Generally not under a new LRBA entered into from 10 August 2026, because ordinary residential rental property is not usually business real property. A genuinely protected pre-commencement arrangement may continue.
Can an existing SMSF residential property loan be refinanced?
The legislation protects refinancing of a borrowing under an arrangement entered into before 10 August 2026. The replacement must fall within the transitional wording, so obtain advice before changing lender, principal or terms.
Can my SMSF borrow to buy my business premises?
Potentially. The property must satisfy the business-real-property test and every other superannuation and LRBA rule. Related-party acquisition and lease arrangements must be at market value and properly documented.
Check your SMSF arrangement with Regans Accountants
Before your SMSF signs, settles or refinances a property transaction, speak with Regans Accountants. We can review the timing, business-real-property evidence, cash flow and tax treatment, and work with your SMSF lawyer to ensure the structure is established correctly.
General information only, current at 5 September 2026, and not personal tax, superannuation, legal or financial advice. SMSF borrowing is highly regulated — speak with us before entering or changing an arrangement.
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