James Creevy and Mitchell Harding, current as of: 29 July 2026.
As has been widely reported in the past month, the rules for Self-Managed Superannuation Funds (SMSFs) borrowing to purchase a property are about to change. The change means that new Limited Recourse Borrowing Arrangements (LRBAs) for standard residential property will no longer be permitted.
If you have clients that are planning to purchase residential property through their SMSF via an LRBA, the window to act is closing quickly.
Below is a breakdown of what is changing, when the deadline takes effect, and importantly, how SMSFs can continue to utilise LRBAs as a valuable investment tool even after the changes take effect.
An amendment to section 67A(2) of the Superannuation Industry (Supervision) Act 1993 (SIS Act) introduces a new condition when acquiring real estate via an LRBA.
The condition will be that any real property purchased using an LRBA must meet the definition of “Business Real Property” (BRP), as defined under Section 66 of the SIS Act. Because standard residential investment properties (like houses or apartments leased to regular tenants) do not satisfy this test, borrowing to purchase them within an SMSF will no longer be permitted.
However, it is important to highlight that this is a ban on borrowing to buy residential property, not a ban on the asset class itself. An SMSF can still purchase residential property outright using 100% cash.
Following Royal Assent of the legislation, the official commencement date for the ban is 10 August 2026.
The law operates prospectively, meaning existing residential LRBAs already in place are fully grandfathered and do not need to be unwound.
Additionally, if a legally binding contract of sale is exchanged and signed before August 10, 2026, the arrangement is permitted, even if the actual settlement of the property occurs after the deadline.
While the window is closing on traditional residential properties, the overarching LRBA framework has not been repealed. It remains a highly effective wealth-building mechanism for several other specific asset classes.
| Important Note: If there is any uncertainty for a particular set of circumstances, a request should be made to the ATO for specific SMSF advice to determine if the proposed transaction complies with Superannuation law – Request for SMSF specific advice | Australian Taxation Office. This type of specific advice is different from an ATO private ruling which would be in relation to a tax issue. |
Borrowing to buy commercial property is completely unaffected by the new legislation. Business Real Property (BRP), defined in section 66 of the SIS Act, generally covers any land and buildings used wholly and exclusively in one or more businesses. This leaves the door open for small-to-medium business owners who want their SMSF to buy a commercial premises, such as an office, warehouse, medical clinic, or retail storefront, and lease it back to their own operating business at market-rate rent.
However, if a commercial property is vacant and holds no business purpose during that vacancy, it may fail the BRP definition because it is not being used wholly and exclusively for business purposes. Conversely, if the vacant land serves a business purpose (such as a commercial car park), it may constitute a sufficient business purpose. This type of scenario is an example of where specific SMSF advice must be sought from the Australian Taxation Office (ATO) – see Important Note below.
| Important Note: If there is any uncertainty for a particular set of circumstances, a request should be made to the ATO for specific SMSF advice to determine if the proposed transaction complies with Superannuation law: Request for SMSF specific advice | Australian Taxation Office. This type of specific advice is different from an ATO private ruling which would be in relation to a tax issue. |
For properties that feature physical elements of a dwelling, the Australian Taxation Office (ATO) applies strict operational benchmarks to determine BRP status. If an SMSF intends to fund the acquisition of a residential-style structure via an LRBA after the cut-off, the property must be legally and physically dedicated to commercial operations at the time of purchase. A standard residential house modified to operate as medical rooms, a dental clinic, or a professional office may satisfy the test if the entire premises is subject to commercial council zoning and a commercial lease. Conversely, short-term accommodation like a peer-to-peer home share provider remains legally classified as a residential premises and fails the BRP test. To qualify, the asset must possess the structural and operational characteristics of a commercial lodging business, such as a purpose-built backpacker hostel or a registered motel, demanding centralized management and a scale of operation that legally constitutes an active business.
Under subsection 66(5) of the SIS Act, BRP must be real property used wholly and exclusively in one or more businesses, subject only to the limited primary production exception in subsection 66(6) (discussed below). Accordingly, where a single-title property includes a residential flat that is occupied for private, non-business purposes, the property will generally fail the business real property test because the real property is no longer used wholly and exclusively in a business. As a result, the property would generally be ineligible for an LRBA where the borrowing provisions require the acquired asset to be BRP.
Primary production land contains a unique legislative exception under Section 66(6) of the SIS Act. Unlike standard real estate, farmland BRP permits an area of the land to contain a private residential dwelling, such as a farm manager’s homestead, without failing the test. This is allowable provided the residential footprint does not exceed two hectares and the dominant use remains primary production.
The new legislative restrictions exclusively target real estate acquisitions. SMSF trustees can continue to utilize LRBAs to purchase single acquirable packages of listed Australian shares, exchange-traded funds (ETFs), or units in widely held commercial property or infrastructure trusts.
It is important to remember that the shares acquired under the LRBA must satisfy the single acquirable asset requirement in section 67A of the SIS Act. Where the asset is a parcel of identical shares or units, the parcel is treated as a single acquirable asset and must continue to be dealt with as one asset. Accordingly, while the LRBA remains in place, the SMSF cannot sell only part of the parcel, it must retain or dispose of the parcel in its entirety.
The fast-approaching deadline for the implementation of this new condition on the use of LRBAs over residential property means that auditors and the ATO will heavily scrutinize any LRBAs executed close to or after the cut-off date. Ensuring that a property truly meets the definition of BRP is paramount, as misclassifying a property can lead to severe structural compliance breaches for illegal borrowing.
Lenders are already handling increased volumes ahead of the cut-off so if you or your clients are planning a residential property LRBA, all necessary Custodian Trust deeds, loan agreements and other related LRBA documentation must be put in place as soon as possible. The Acis team is here to support you through these changes, supply the relevant LRBA Custodian Trust Deeds and help you and your clients comply both before and after the August 10 deadline.
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