Federal Budget 2026-27 Changes - SMSF Borrowing for Property
Significant changes have been made to the rules allowing Self-Managed Superannuation Funds (SMSFs) to borrow to purchase property.
The changes are now law following the passing of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 which received Royal Assent on 26 June 2026. The new rules commenced on 10 August 2026.
What has changed?
SMSFs are generally prohibited from borrowing. However, an exception has historically allowed SMSFs to borrow under Limited Recourse Borrowing Arrangement (LRBA) to acquire certain assets, including residential and commercial property.
From 10 August 2026, an SMSF entering into a new LRBA to acquire real property can only use the borrowing to acquire business real property.
In practical terms, this means an SMSF can no longer establish a new LRBA to purchase a residential investment property.
Can an SMSF still buy residential property?
Yes.
The legislation does not prohibit an SMSF from owning or purchasing residential property. Rather, it restricts the ability of an SMSF to borrow to fund the purchase.
An SMSF with sufficient cash can therefore still acquire a residential investment property without an LRBA, provided the investment otherwise complies with the superannuation rules.
The changes are also specific to real property. They do not represent a general removal of the LRBA provisions from the superannuation legislation.
What about existing residential proeprty loans?
These changes are prospective.
Residential property LRBAs entered into before the new rules commenced are protected by transitional provisions and can generally continue.
The legislation also provides protection where an SMSF entered into an arrangement to acquire the property before commencement, even if the acquisition or settlement occurred after 10 August 2026.
Existing borrowings can also potentially be refinanced without losing the transitional protection. Care is required, however, when restructuring or materially changing an existing loan, as the particular transaction needs to satisfy the LRBA and transitional provisions.
Can an SMSF still borrow to buy commercial property?
Yes.
SMSFs can continue to use LRBAs to acquire real property that qualifies as “business real property” under the superannuation legislation.
Broadly, business real property is property that is used wholly and exclusively in one or more businesses. It can include assets such as offices, warehouses, factories, shops and other qualifying commercial premises.
This means borrowing within an SMSF may remain an important strategy for business owners wishing to acquire eligible business premises through their superannuation fund.
The existing superannuation rules still apply, including the sole purpose test, related-party rules, investment strategy requirements and specific LRBA requirements.
What does this mean for SMSF trustees?
For SMSF trustees considering property investment, the distinction between buying property and borrowing to buy property is now particularly important.
From 10 August 2026:
Residential investment property
An SMSF can still purchase residential property using its own available cash, but it cannot establish a new LRBA to fund the purchase.
Business real property
An SMSF may still be able to borrow under an LRBA to acquire qualifying business real property, subject to the normal SMSF and borrowing requirements.
Existing residential LRBAs
Existing arrangements entered into before commencement are generally protected and can continue, with transitional provisions also applying to certain acquisitions and refinancing arrangements already in progress.
Planning before purchasing property through an SMSF
Buying property through an SMSF has always required careful planning due to the strict rules around ownership, borrowing structures, related parties and the use of fund assets.
The new restrictions make it particularly important to determine before signing a property contract, whether borrowing will be required and whether the proposed property qualifies as business real property.
SMSF trustees contemplating a property acquisition should seek advice before entering into a contract or finance arrangement to ensure the proposed structure complies with the superannuation legislation.
DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.
Jeanette has over 20 years experience as an accountant in public practice. She is a Chartered Accountant, registered tax agent and accredited SMSF Association advisor. When she is not helping business owners grow their empires, you will likely find her out running on the trails or at the gym. Book in to see Jeanette today.
