SMSF borrowing has changed: what the new property rules mean for your fund

If your self managed super fund borrows to invest in property, or you have been planning to, the ground moved on 10 August 2026. New rules now limit what kind of real property an SMSF can buy with borrowed money. The change is narrower than some of the headlines suggest, but it is a genuine shift, and it lands squarely on the residential property strategy a lot of funds have been built around.

Here is the plain shape of it, what is protected, and the specific things worth checking before your fund signs anything.

What actually changed

Super law has long banned SMSFs from borrowing, with a short list of exceptions. The main exception is the limited recourse borrowing arrangement, or LRBA, which lets a fund borrow to acquire a single asset held in a separate trust, with the lender’s recourse limited to that asset alone.

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026, narrows that exception. For any LRBA entered into on or after 10 August 2026, where the fund is acquiring real property, that property can only be business real property.

Two things are worth saying clearly, because both get misreported.

LRBAs are not banned. Your fund can still borrow under an LRBA, and it can still hold and maintain an existing borrowing. What has changed is the type of real property that borrowing can be used to acquire.

The rules do not care who the lender is. Bank, non-bank lender, or a related party such as you or a family trust: the requirement applies to the arrangement itself. The identity of the lender does not decide whether the property has to be business real property.

Nothing else about how LRBAs operate has changed, and the other exceptions to the borrowing prohibition are untouched.

What counts as business real property

This is the phrase the whole change turns on. Business real property generally means land and buildings used wholly and exclusively in a business.

“Wholly and exclusively” is the demanding part. A commercial premises your own trading company operates from is the standard example, and that is exactly why this change is far less disruptive for business owners than it is for residential investors. A property with a mixed private use will usually struggle.

There is one carve out worth knowing. Property used in a primary production business can still qualify even though it contains a dwelling used for private or domestic purposes, provided the dwelling sits on an area of land no more than 2 hectares, and the main use of the whole property is not domestic or private. Farming families in particular should not assume they are excluded.

Residential property is not automatically out either, but the test is unforgiving: residential real property can be acquired under an LRBA only if it genuinely meets the business real property definition, both at the start and throughout. In practice, a standard residential rental will not.

Your fund can still buy residential property outright with its own cash. What it can no longer do is borrow to buy it.

That distinction is the practical heart of the change. The asset is not prohibited. The financing is.

What is protected

The changes are not retrospective, and the grandfathering is reasonably generous. The new rules do not apply where your fund:

• Already entered into an LRBA to finance a real property acquisition before 10 August 2026. That property does not need to be business real property.
• Maintains or refinances that arrangement on or after 10 August 2026. Refinancing here means entering into a new loan contract for the same asset, with the same lender or a new one. You do not lose your position by moving lenders for a better rate.
• Exchanged a binding contract to acquire the property before 10 August 2026. This holds even if settlement happens after that date, and even if the LRBA itself is entered into afterwards.

That last one matters more than it looks. An off the plan purchase contracted before 10 August, with finance approved afterwards and settlement a year later, is not caught. The date that counts is the date the binding contract was exchanged, not the date of settlement or of the loan.

One caution on that protection. Later variations to a contract will generally not disturb it, but if a contract is changed so significantly that its fundamental terms no longer exist, it may be treated as a new arrangement, and then the new rules apply. If you are renegotiating a pre 10 August contract, raise it with us before you agree to anything.

The trap: it is an ongoing test, not a one off

The requirement is not satisfied simply by ticking a box at settlement. The property must be business real property at the time the LRBA is entered into, and it must remain business real property for the entire life of the arrangement.

If the property fails the test at the start, or stops meeting it partway through, the fund has breached the prohibition on borrowing, and compliance action may follow. That is a serious outcome, not a paperwork slip.

The realistic risk here is drift. A commercial property whose use quietly changes over the years, or a tenancy that lapses and is never really pursued again, can move a fund offside without anyone making a decision to do so. On that point the ATO draws a sensible line: a leased commercial premises does not stop being business real property merely because the owner is between tenants and looking for a new one. But if the owner abandons the plan to lease it, the property no longer qualifies.

For trustees, that turns this into a monitoring obligation for as long as the loan runs, not a hurdle cleared once.

What to do now

If your fund has an existing LRBA, you are grandfathered and nothing needs to change. Refinancing stays open to you. It is still worth confirming the arrangement is documented properly, since that is the kind of thing that only surfaces at audit.

If you exchanged a contract before 10 August, you are protected, but keep the exchange date and the contract itself somewhere you can produce them. And come to us first if the terms are being renegotiated.

If you were planning to borrow to buy a residential investment property, that strategy is no longer available to your fund and the investment strategy needs revisiting. There are alternatives worth weighing, including acquiring outright where the fund has the liquidity, or looking at business real property instead, particularly if you own a trading business currently renting premises.

If you are buying business real property, you can proceed, but the wholly and exclusively test needs to be confirmed before you commit, not assumed. Any private or mixed use is where this comes unstuck.

If you are a trustee of any borrowing fund, build a habit of checking annually that the property still meets the test, and tell us promptly if the use or tenancy changes.

Where this leaves things

For business owners using their fund to hold the premises they trade from, very little has changed. For funds built around geared residential property, the plan needs a rethink, and the sooner that happens the better, because the grandfathering rewards those who acted before 10 August and offers nothing to those still deciding.

If you are not certain which side of the line your fund sits on, or whether a property you are looking at would satisfy the business real property test, that is a short conversation worth having before contracts are exchanged rather than after. Get in touch and we will work through where your fund stands.

This article is general information only and does not take your personal circumstances into account. SMSF borrowing rules are complex and the consequences of getting them wrong are significant, so please seek advice specific to your fund before acting.

General information only This article is general information, not personal advice. It does not take your particular circumstances into account. Before you act on anything here, talk to us so we can give you advice that fits your situation.