SMSF Property Borrowing Rules Change: What Investors Need to Know
New rules affecting SMSF borrowing to purchase property have now taken effect.
From 10 August 2026, an SMSF can no longer enter into a new Limited Recourse Borrowing Arrangement (LRBA) to acquire residential property.
The change does not prevent SMSFs from owning residential property. It removes the ability to use a new LRBA to leverage the purchase of residential property.
What has changed?
An LRBA is a specific exception to the general prohibition on SMSF borrowing. It has traditionally allowed an SMSF to borrow to acquire certain assets, including residential and commercial property.
The new rules restrict LRBAs involving real property to business real property.
This means a new SMSF borrowing arrangement cannot be used to purchase an ordinary residential investment property such as a house, apartment or unit.
Commercial property remains available
The change does not remove the ability for an SMSF to use an LRBA to acquire business real property.
This can include commercial premises such as offices, warehouses and retail properties, provided the property meets the requirements of the superannuation legislation.
The legislation uses the specific term business real property, so whether a particular property qualifies depends on how it is used and the circumstances of the transaction.
What happens to existing residential property LRBAs?
Existing arrangements are protected.
An SMSF that already had a residential property LRBA in place before the new rules commenced does not have to sell the property or repay the loan simply because of the legislative change.
Certain refinancing arrangements involving existing LRBAs can also continue, subject to the applicable requirements.
There are also transitional provisions for certain property transactions that were already underway before the new rules commenced. The timing and structure of the transaction will determine whether those provisions apply.
Can an SMSF still buy residential property?
Yes. An SMSF can still potentially acquire residential property using its existing fund assets without borrowing, provided the investment complies with the SMSF rules.
The change is therefore specifically about leveraged residential property purchases through an LRBA, rather than a prohibition on residential property ownership by SMSFs.
At a glance
ArrangementPositionNew LRBA to purchase residential propertyNot permittedNew LRBA to purchase eligible business real propertyStill permittedExisting residential property LRBACan continueSMSF purchasing residential property without borrowingStill permitted, subject to SMSF rules
Key takeaway
The changes significantly alter the way SMSFs can use borrowing to invest in property.
For new arrangements, residential property can no longer be acquired using an LRBA, while eligible commercial/business real property remains within the LRBA framework.
Existing arrangements and certain transactions already underway are subject to transitional and grandfathering provisions.
This article is provided for general information only and does not constitute financial, tax, legal or superannuation advice. SMSF and LRBA arrangements are subject to specific legislative requirements. Anyone considering an SMSF property transaction should obtain appropriate advice from their accountant, financial adviser or SMSF specialist before proceeding.
