Highlights
- New LRBA rules materially restrict the types of real property SMSFs can acquire using borrowing.
- For new arrangements caught by the reforms, real property generally needs to satisfy the Business real property test.
- Existing arrangements and transitional cases may continue under the previous framework, depending on when contracts and borrowing arrangements were entered into.
- Trustees considering property Acquisition through an SMSF should confirm both the property’s character and the transitional rules before proceeding.
Self-managed super fund (SMSF) trustees planning to borrow to buy property face an important new restriction.
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026 and includes amendments to the limited recourse borrowing arrangement provisions in the Superannuation Industry (Supervision) Act 1993.
The changes materially narrow the circumstances in which an SMSF can use an LRBA to acquire real property.
What has changed
Previously, SMSFs could use an LRBA to acquire different types of real property provided the arrangement satisfied the broader superannuation and borrowing rules.
Under the new framework, new LRBAs caught by the reforms are restricted in relation to real property, with the property generally needing to qualify as business real property.
That is a significant change for SMSFs that may previously have contemplated borrowing to acquire residential Investment property.
The legislation itself confirms that Schedule 5 of the 2026 Act deals specifically with limited recourse borrowing arrangements and amends the Superannuation Industry (Supervision) Act 1993.
When the new rules apply
The timing of the arrangement is particularly important.
The ATO guidance accompanying the changes should be checked carefully to establish whether an LRBA falls under the new regime or is protected by transitional treatment.
Existing borrowing arrangements entered into before the commencement of the new restrictions may continue to operate under the previous rules, while transitional protection can also be relevant where a property transaction was already contractually committed before the change took effect.
Trustees who were mid-transaction around the commencement period should therefore confirm the date of any binding property contract as well as the date the LRBA itself was entered into.
Who may be affected
SMSFs planning to establish a new LRBA to purchase real property are the most directly affected.
The change is particularly important for trustees considering residential investment property because ordinary residential investment property will generally not satisfy the business real property test.
Funds with existing LRBAs may be treated differently under the transitional rules.
Trustees considering refinancing an existing arrangement should also confirm that the proposed refinancing preserves the protection available to the original LRBA rather than assuming every refinancing automatically falls outside the new rules.
What to consider next
Trustees contemplating a new property purchase with borrowing should establish whether the proposed asset qualifies as business real property before entering into any binding arrangement.
That assessment should be completed before contracts are signed or an LRBA structure is implemented.
Where an SMSF had planned to borrow to acquire residential property, the strategy may need to be reconsidered because the new rules significantly narrow the availability of LRBAs for real property.
The transitional provisions are also important and should be checked against the precise dates and documents involved in the transaction.
What counts as business real property
The practical effect of the reform depends heavily on the meaning of business real property.
Broadly, business real property is real property used wholly and exclusively in one or more businesses.
Examples can include commercial premises, warehouses or farmland genuinely used in a primary production business.
In some circumstances, business real property may also be leased to a related party, provided the relevant superannuation rules are satisfied.
Residential property held simply as a passive investment will generally not meet the business real property definition.
That distinction is what makes the reforms particularly significant for SMSFs that had been considering geared residential property investment.
Mixed-use properties can be more complicated.
Where a property has both business and residential elements, trustees should not assume it qualifies. The exact use of the property and the statutory definition need to be considered carefully.
Transitional rules matter
The transitional rules can make the difference between the old and new LRBA frameworks applying.
Existing arrangements established before the relevant commencement point may continue under the earlier settings.
Transactions where a binding property contract was entered into before the cut-off may also receive transitional protection, depending on the detailed legislative provisions.
This means the contract date, LRBA documentation and any refinancing arrangements all matter.
Trustees should therefore retain clear records showing when agreements were entered into and seek confirmation of the applicable treatment before making changes to an existing structure.
What investors should take away
The reforms do not abolish SMSF borrowing for property altogether.
Instead, they significantly narrow the circumstances in which new LRBAs can be used to acquire real property.
For trustees, the key question is no longer simply whether the SMSF can afford to borrow or whether the investment fits its strategy.
The nature of the property itself, the date of the transaction and the precise LRBA structure now require closer examination.
For anyone considering a new geared property purchase through an SMSF, confirming that the proposed property qualifies under the new rules should come before committing to the transaction.
