SMSFs to be banned from borrowing to buy residential property

As part of the May Budget tax legislation that became law on 26 June 2026, the Government has banned new limited recourse borrowing arrangements (LRBAs) used by self-managed super funds (SMSFs) to purchase residential property.

What is an LRBA

Super funds are generally not allowed to borrow to invest. The one exception is the LRBA, which allows an SMSF to borrow money to purchase a single asset (typically property) held inside a separate bare trust. If the loan defaults, the lender can only claim that one asset and the rest of the fund’s assets are protected.

LRBAs have been used since 2007 and have become a common strategy for SMSF members to acquire residential and commercial property inside super.

What is changing

From the date the legislation takes effect, SMSFs will no longer be able to enter new LRBAs to purchase residential property. With Royal Assent received on 26 June 2026, the ban commences 45 days later, on 10 August 2026.

What is not changing

• Existing LRBAs for residential property are not affected. If your SMSF already has one in place, nothing changes.
• Contracts signed before the commencement date are protected. If you have already exchanged contracts to purchase a residential property in your SMSF (even if settlement is yet to happen), the arrangement is grandfathered.
• LRBAs for commercial property remain available. This includes business real property, which is the strategy commonly used by business owners who buy their business premises through their SMSF and lease it back to their operating company. This remains one of the most powerful structures available to small business owners and is not affected by the change.

Key takeaway

LRBAs for commercial property remain available. This includes business real property, which is the strategy commonly used by business owners who buy their business premises through their SMSF and lease it back to their operating company. This remains one of the most powerful structures available to small business owners and is not affected by the change.

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