SMSF Borrowing Update

What the Ban on Residential LRBA Means for Your Fund

The landscape for Self-Managed Super Funds (SMSFs) in Australia is undergoing a significant shift. On June 23, 2026, the Australian Government announced a major legislative change that will restrict how SMSFs can use Limited Recourse Borrowing Arrangements (LRBAs) to acquire residential property. 

​For many trustees, this news comes as a pivotal moment to review their investment strategies. The bill has now  passed the Senate, the trajectory is clear: new residential borrowing via SMSF LRBAs will be banned from 10 August, 2026. 

​Here is a comprehensive breakdown of what is happening, what remains allowed, and how trustees should prepare. ​

The Core Change: A Ban on New Residential LRBAs 

The amendment aims to stop SMSFs from entering into new LRBAs specifically to purchase residential property. 

Expected Commencement: 10 August 2026 (45 days after Royal Assent). 

Current Status: The bill was approved by the Senate Friday 26 June. 

Once the legislation comes into force, trustees will no longer be able to use borrowed funds to buy a new residential investment property within their SMSF structure. 

What Remains Allowed? Key Exceptions and Opportunities 

While the residential ban is the headline, the legislation is designed to target specific asset classes. Several pathways remain open for SMSF trustees

1. Commercial Property is Unaffected 

Commercial LRBAs are completely unaffected by this legislation. Trustees who intended to use an LRBA for a residential investment can pivot their strategy to: Industrial units, Retail tenancies, Office suites. This remains a viable and stable avenue for SMSF borrowing. 

2. The "Business Real Property" Loophole 

The amendment explicitly allows SMSFs to enter into LRBAs to acquire "Business Real Property" (BRP). 

This is a critical distinction for trustees looking at properties that might otherwise be classified as residential. For example: A residential building used 100% as a business premise (e.g., a law firm, dental practice, or retail office). 

The strict requirement is that he property must be genuinely used for business purposes only. There can be no residential occupation and no mixed-use arrangements. If a portion of the building is used for living purposes, it will not qualify. 

3. Grandfathering for Existing Loans 

If your SMSF already has an active LRBA, you are safe. The amendment does not apply to existing arrangements. Also, the legislation explicitly permits the "maintenance or refinancing" of a borrowing under an arrangement entered into before the commencement date. You can continue to service and refinance your current loans without restriction. 

4. The "Exchanged Contract" Safety Net 

Timing is everything. If your SMSF has already exchanged contracts for a residential property before the Act commences, the ban does not apply.  Even if the settlement date falls after the ban comes into effect, the transaction is protected. 

​Similarly for off-the-plan contracts where contracts were exchanged prior to the Act’s commencement are considered acceptable. Several lenders have advised they will still consider providing finance for these specific off-the-plan purchases. 

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Strategic Next Steps for SMSF Trustees 

G​iven the impending changes and the uncertainty, trustees should take the following actions immediately: 

• Obtain specific advice and do not rely on general assumptions. Consult with your SMSF specialist or accountant to ensure the property you intend to acquire meets the strict new legislative requirements, particularly regarding "Business Real Property" definitions. 
• Secure pre-approval from your lender before entering into any purchase contract. Lenders are already adjusting their policies based on these announcements. 
• Review your residential acquisition strategy, consider pivoting to commercial assets or reviewing your existing portfolio for refinancing opportunities. 

The window to act on residential strategies is narrowing. Proactive planning is the key to navigating this transition successfully.

This article is for informational purposes only and does not constitute financial or legal advice. Legislative changes are subject to Senate approval and potential amendment. Always seek professional advice tailored to your specific circumstances.

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