TLDR
A new federal law bars self-managed super funds from borrowing to buy residential property, with the ban in force from 10 August 2026. Existing loans are protected, and contracts signed before that date can still settle. Commercial property borrowing and outright residential purchases without a loan remain available.
KEY TAKEAWAYS
The borrowing door closes
From 10 August 2026, self-managed super funds can no longer establish new limited recourse borrowing arrangements to purchase residential property.[1] That single line of amended statute closes off a gearing strategy that has shaped SMSF investment behaviour for nearly two decades.
Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026.[1] Schedule 5 commences on the 45th day after Royal Assent, landing on 10 August.[1] For SMSF trustees, advisers, mortgage brokers and conveyancers with residential transactions in the pipeline, that deadline is now.
What the law actually changed
Under the Superannuation Industry (Supervision) Act 1993, section 67 generally prohibits SMSF trustees from borrowing money. Section 67A has since 2007 provided the key exception: a limited recourse borrowing arrangement, or LRBA, which allows a fund to borrow to acquire a single asset held in a separate bare trust, with the lender's recourse limited to that asset alone.[2] Other SMSF assets stay protected regardless of what happens to the borrowed asset.
The amendment does not abolish LRBAs. It narrows the exception: any real property acquired under an LRBA must now be "business real property" as defined in section 66 of the SIS Act.[2] Residential investment property, the asset class that dominated SMSF borrowing activity, no longer qualifies as the target of a new arrangement.
Jason Bibby, Managing Director of SMSF Financial Solutions, said the scale of the shift is hard to overstate. "This is the biggest change to borrowing in super since limited recourse borrowing was introduced back in 2007," Bibby said.[4] The original LRBA exception took years to bed down in practice, and the industry built significant infrastructure around residential property gearing that must now be unwound for new clients.
Where the transitional protection sits
Existing residential LRBAs entered into before 10 August 2026 are grandfathered, and that protection extends to refinancing arrangements and to acquisitions where contracts were exchanged before the commencement date, even if settlement occurs after.[1] A fund that already holds a residential property under an LRBA can refinance to a better rate or a different lender without triggering the ban.
The contract-exchange rule is the detail most likely to catch people off guard. Bibby said the distinction matters enormously in practice: "The part that surprises people is that it is the contract that has to be signed before the deadline, not the settlement."[4] A fund that exchanged contracts on a residential property purchase before 10 August, with LRBA finance in place, can proceed to settlement in the weeks or months ahead without breaching the new law.
The corollary is equally clear. Any fund that has not yet exchanged contracts, or has not yet formally established the LRBA, cannot do so from 10 August onwards for a residential asset. The bare trust structure, the loan facility, and the contract all needed to be in motion before the cut-off.
What SMSFs can still do
The ban is narrower than some early commentary suggested. Commercial and industrial property that qualifies as eligible business real property under section 66 of the SIS Act can still be acquired through an LRBA.[2] A fund that borrows to buy a factory, a warehouse, or office premises occupied by a related business can still use the gearing structure the law has always permitted for that purpose.
Trustees may still purchase residential property outright without borrowing; the reform restricts new borrowing arrangements only, and does not prevent a fund with sufficient liquidity from acquiring a residential asset directly.[3] That distinction matters for larger funds that hold diversified assets and do not rely on leverage to fund property exposure.
For most retail fund members, the practical effect is that the route into residential property narrows to cash purchases. The borrowing shortcut that let trustees with modest balances hold geared residential investment property is gone for anyone who had not already committed before the deadline.
Who else feels this immediately
The impact radiates beyond fund trustees. Advisers, mortgage brokers and conveyancers facilitating SMSF residential property transactions need to audit their pipeline now. Any settlement that relies on an LRBA established after 10 August will breach the amended section 67A, regardless of when the underlying property contract was signed.
Lenders that specifically offer SMSF residential loan products face an obvious reduction in eligible new business. The LRBA loan book for residential property is, from this point, a run-off portfolio. Commercial LRBA lending for eligible business real property remains open, but that market has always been smaller and more credit-intensive than the residential segment that drove volume.
Professional advisers should review every SMSF client's existing residential LRBA documentation to confirm it was properly established before the commencement date. The grandfathering provisions protect arrangements that meet the legislative test, but that protection depends on the underlying structure being compliant in the first place. The Australian Taxation Office administers the SIS Act compliance framework, and the ATO's SMSF guidance remains the authoritative reference for trustees unsure of their position.[2]
The read-through for SMSF strategy
The residential LRBA has been one of the most widely discussed structures in the retail superannuation space precisely because it let trustees combine two Australian investment preoccupations: property and self-directed super. Removing that combination for new arrangements does not remove the demand; it redirects it toward unleveraged residential exposure, commercial property LRBAs, or listed property vehicles held inside the fund.
Advisers who built practices around SMSF residential borrowing face a client conversation that was unavoidable from 26 June. The law received Royal Assent on that date, Schedule 5 commenced on 10 August 2026, and the compliance clock is running.
SOURCES & CITATIONS
FREQUENTLY ASKED QUESTIONS
Can my SMSF still refinance an existing residential property loan after 10 August 2026?
What if my SMSF signed a purchase contract before 10 August but settlement is later?
Can my SMSF still borrow to buy commercial property?
Can my SMSF buy residential property without borrowing?
Vikram Singh writes about banking. He follows where money actually moves, from the strategy set in head office to what changes on a customer's phone.
