SMSF borrowing and residential property: new LRBA restrictions

Self-managed superannuation funds are generally restricted from borrowing. A limited recourse borrowing arrangement, or LRBA, has been one of the main exceptions, allowing an SMSF to borrow to acquire a single asset while limiting the lender's recourse to that asset.

New restrictions are expected to prevent new SMSF LRBAs being used to acquire residential property from 10 August 2026. This is a significant change for trustees who have been considering residential property as part of their SMSF investment strategy.

This update may affect SMSF trustees who are considering buying residential property using borrowed funds, trustees already part way through a residential property acquisition, and clients with existing SMSF borrowing arrangements.

It may also be relevant to business owners considering whether an SMSF can borrow to acquire business real property, such as premises used wholly and exclusively in a business.

The change is targeted at new borrowing arrangements for residential property. Existing LRBAs are expected to be protected, and refinancing of existing arrangements may remain possible if the conditions are satisfied.

Borrowing to acquire business real property may still be available, but this requires careful review. 'Commercial property' and 'business real property' are not always the same thing. Mixed-use property, vacant land and property with any private or residential component may require particular care.

Clients who are already considering or negotiating an SMSF residential property purchase should seek advice before signing contracts, establishing a holding trust or proceeding with finance. The key issue will often be whether the relevant arrangement is in place before commencement and whether the transaction satisfies the transitional rules.

SMSF trustees should also ensure the investment remains consistent with the fund's investment strategy, liquidity needs, contribution limits and broader retirement objectives.

SMSF borrowing is a specialist area involving superannuation law, tax, lending, documentation and financial advice issues. The commencement date, grandfathering and refinancing rules should be verified against the enacted law and ATO guidance before publication.

If your SMSF has an existing LRBA, or you are considering using borrowings to acquire property through an SMSF, please contact us before taking the next step.