On 23 June 2026, Treasurer Jim Chalmers announced that the government had agreed to ban new limited recourse borrowing arrangements (LRBAs) for residential property inside SMSFs. The announcement formed part of an agreement intended to secure Senate support for the government’s broader tax reform package.
For trustees, the distinction between an announcement and enacted law matters. The government has confirmed the policy direction, intended grandfathering and a 45-day transition for investments already underway. The final amendment text has not yet been published, so important legal details remain unresolved.
This article explains the announcement, what appears unchanged and where trustees need to wait for the legislation rather than act on assumptions.
Key Takeaways
- The government has announced a ban on new residential property LRBAs inside SMSFs.
- Existing residential property LRBAs are intended to remain in place.
- A 45-day transition is intended to protect investments already underway, but the legal eligibility test is not yet known.
- Commercial property LRBAs appear outside the announced ban, subject to the final amendment.
- SMSFs would still be able to buy residential property outright using available fund money.
- The announcement does not itself change the law. Trustees considering a transaction, refinance or restructure should obtain advice based on the final legislation.
Contents
- How an SMSF limited recourse borrowing arrangement works
- The announced residential property borrowing ban
- Existing SMSF property loans and grandfathering
- Residential property purchases without borrowing
- Commercial and mixed-use property LRBAs
- Why the government announced the LRBA ban
- The proposed 45-day transition period
- What the announcement means for different SMSF trustees
- Frequently Asked Questions
How an SMSF limited recourse borrowing arrangement works
SMSFs are generally prohibited from borrowing. An LRBA is a narrow exception under section 67A of the Superannuation Industry (Supervision) Act 1993 that can allow a fund to borrow to acquire a single asset while meeting strict conditions.
The purchased asset is usually held by a separate holding trustee until the loan is repaid. The SMSF has the beneficial interest, receives the investment income and makes the loan repayments. If the arrangement defaults, the lender’s statutory recourse is generally limited to the acquired asset rather than the fund’s other assets.
That limitation does not necessarily remove personal exposure. Loan documents may include trustee guarantees, and the consequences depend on the terms of the particular arrangement.
The SMSF Property Guide explains the structure in more detail, while the SMSF glossary definition of LRBA gives a concise overview. The ATO also maintains detailed guidance on limited recourse borrowing arrangements.
The announced residential property borrowing ban
The government says it will amend the tax reform legislation so that SMSFs cannot enter new LRBAs for residential property once the measure commences.
The position announced on 23 June can be summarised as follows:
| Situation | Announced position |
|---|---|
| Buy residential property outright with available fund money | Remains available, subject to existing SMSF rules |
| Enter a new LRBA for residential property after commencement | To be banned |
| Continue an existing residential property LRBA | Intended to be grandfathered |
| Complete a residential investment already underway | A 45-day transition has been announced; final eligibility rules are pending |
| Enter an LRBA for commercial property | Appears unaffected because the announcement is limited to residential property |
| Ordinary SMSF tax treatment of property | No change was announced |
This is a significant structural change for funds that expected to use leverage to buy residential property. It does not, however, remove residential property as an SMSF investment class.
How large is the LRBA market?
The Treasurer said SMSFs account for less than 1% of total residential property borrowing and less than 0.5% of new residential borrowing each year. Those figures explain why the government describes the market-wide effect as small.
The effect on an individual fund can still be substantial. A trustee whose investment plan depends on borrowing may need to reconsider asset selection, diversification, liquidity and whether the planned SMSF remains appropriate. Those are fund-specific decisions, not conclusions that can be drawn from the policy announcement alone.
Existing SMSF property loans and grandfathering
The government has stated that existing residential property LRBAs will remain in place. On that announced approach, an existing loan would continue and the residential property would not need to be sold merely because of the new restriction.
Trustees would still need to meet all existing obligations, including repayments, arm’s length terms, record keeping, annual valuation and investment strategy requirements.
Refinancing remains an unresolved issue
The announcement does not explain whether refinancing, changing lenders, extending a term or materially restructuring a grandfathered loan will be treated as continuing the existing arrangement or entering a new LRBA.
That distinction must come from the legislation and any supporting guidance. Trustees considering changes to an existing loan should avoid assuming that grandfathering automatically follows a refinanced or restructured arrangement.
Residential property purchases without borrowing
The announced measure targets new borrowing, not ownership. An SMSF with sufficient available money could still purchase residential investment property outright under the existing rules.
Those rules remain strict. Residential property generally cannot be acquired from, leased to or used by a member or related party. The investment must satisfy the sole purpose test, align with the fund’s documented strategy and be made on arm’s length terms. The SMSF Rules and Limits Reference summarises these restrictions.
The SMSF tax position was not part of the announcement
No change was announced to the ordinary tax treatment of property held by a complying SMSF. Eligible assets held for more than 12 months may still receive the one-third CGT discount in accumulation phase. Exempt current pension income may apply where assets support retirement-phase liabilities and the relevant conditions are met.
Tax outcomes depend on the fund’s circumstances and compliance. They should not be treated as a reason, by themselves, to acquire property or establish an SMSF.
Worked example: outright purchase compared with an LRBA
Consider a two-member SMSF with $1.2 million in assets, including $400,000 in cash and term deposits.
Before the announced ban commences, the fund may be able to use $400,000 as equity, borrow another $400,000 through a compliant LRBA and purchase an $800,000 residential investment property.
After commencement, the announced policy would remove that borrowing option for a new residential purchase. The fund could still consider property within its available resources, but selling other assets to fund a larger purchase would alter diversification and liquidity. Whether either course is appropriate requires a review of the fund’s investment strategy requirements and professional advice.
Commercial and mixed-use property LRBAs
The government’s announcement refers specifically to residential property. On the information currently available, LRBAs for commercial property, including eligible business premises, appear to remain available.
This distinction matters for small business owners whose SMSF owns, or is considering acquiring, business real property. Existing related party, arm’s length, borrowing and holding trust rules would still apply.
Mixed-use property is less clear. Until the amendment defines residential property and deals with assets that have both residential and commercial components, trustees should not assume that a mixed-use acquisition falls outside the proposed restriction.
Why the government announced the LRBA ban
The change was announced as part of negotiations over the government’s 2026 tax reform package. That package proposes changes to capital gains tax and negative gearing for investors outside super, while complying super funds remain outside those particular reforms. Our SMSF Budget 2026 analysis explains that broader context.
Restrictions on SMSF borrowing have been considered before. The 2014 Financial System Inquiry recommended removing the LRBA exception. The Treasurer also referred to later Council of Financial Regulators reviews that identified risks for individual fund members even where the arrangements did not create systemic financial risk.
Direct property can concentrate a fund in one illiquid asset. Borrowing adds interest-rate, cash-flow and refinancing risk. The announced ban is broader than a disclosure or lending standard: for new residential arrangements, it would remove the borrowing pathway entirely.
The proposed 45-day transition period
The government has announced a 45-day transition for residential property investments already underway. The Treasurer described it as applying to investments that are “currently midstream”.
The exact commencement date cannot be known until the legislation passes and receives royal assent. More importantly, the announcement does not yet provide the legal test for an arrangement to qualify for transition protection.
Questions still requiring the amendment text include:
- whether protection turns on a signed property contract, executed loan documents or another event
- whether conditional contracts qualify
- how a replacement lender or amended facility is treated
- how mixed-use property is classified
- what evidence trustees must retain to establish that an arrangement was underway
Trustees should not treat the 45-day announcement as a general invitation to rush a new transaction. An LRBA involves legal documents, a holding trust, finance approval, property due diligence, liquidity analysis and an updated investment strategy. Accelerating those steps can compound risk.
What the announcement means for different SMSF trustees
| Your situation | General information to consider |
|---|---|
| The fund already has a residential LRBA | The arrangement is intended to be grandfathered. Continue meeting current obligations and wait for the final rules before refinancing or restructuring. |
| A residential purchase or loan is already underway | The announced transition may be relevant, but eligibility is not yet defined. Give your solicitor and SMSF specialist the documents and timeline so they can assess the final amendment when available. |
| A future residential LRBA was part of the fund’s plan | The option is intended to close after commencement. Revisit the fund’s strategy, liquidity and diversification rather than assuming the transaction should be accelerated. |
| The fund owns residential property without borrowing | The borrowing announcement does not directly affect ownership. Existing property and compliance rules continue. |
| The fund has or is considering a commercial property LRBA | Commercial property appears outside the announcement, subject to the final definition and rules. |
| An SMSF was being established mainly to borrow for residential property | Reassess the basis for establishment before incurring further costs. The SMSF Setup Guide covers the broader suitability and trustee obligation questions. |
For many trustees, the announcement will not change day-to-day fund administration. The most immediate uncertainty falls on transactions already underway and existing borrowers considering a refinance or restructure.
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Frequently Asked Questions
Can my SMSF still buy a house as an investment?
Under the announced policy, an SMSF with enough available money could still buy residential investment property outright. The proposed ban targets new borrowing arrangements rather than ownership. Existing sole purpose, related party, investment strategy and other compliance rules would continue to apply.
Does the announced ban affect my existing SMSF property loan?
The government says existing residential property LRBAs will remain in place. The final legislation will determine the precise grandfathering rules, including how later refinancing or restructuring is treated.
Can an SMSF still borrow to buy commercial property?
The government’s announcement is confined to residential property, so commercial property LRBAs appear unaffected. Trustees should confirm the final amendment, particularly for mixed-use property, before relying on that distinction.
When will the SMSF residential property borrowing ban start?
The government has announced a 45-day transition period after the legislation receives royal assent. No exact commencement date can be calculated until the legislation passes and receives assent.
Can I start a new residential property LRBA before the ban begins?
The current law remains in force until any amendment commences, but the transition test and final legal requirements have not yet been published. Starting or accelerating an arrangement solely to meet an uncertain deadline can create material legal, financing, liquidity and compliance risks. Obtain fund-specific legal and licensed financial advice before acting.
Will the tax treatment of SMSF property change?
The announcement concerns the borrowing mechanism. It does not announce changes to the ordinary tax treatment of complying SMSFs, including the one-third CGT discount for eligible assets held longer than 12 months or exempt current pension income where the relevant requirements are met.
Does the announcement affect my SMSF investment strategy?
Trustees should review the investment strategy when a material legal or practical change affects the fund’s intended investments. A strategy that relies on a future residential property LRBA may need to be reconsidered once the final law and commencement rules are known.
What happens to a mixed-use property under the proposed ban?
That is not yet clear. The final amendment will need to define residential property and determine how mixed-use assets are treated. Trustees considering mixed-use property should obtain legal advice once the text is available.
Disclaimer
This article provides general information only and does not constitute financial, legal, tax or investment advice. It does not take account of your objectives, financial situation or needs. Consider obtaining advice from an appropriately qualified professional before making decisions about an SMSF, property or borrowing arrangement.
This article reflects the policy announcement and publicly available information at 25 June 2026. The residential LRBA amendment had not become law and its final text was not available at publication. The article will be reviewed when the legislation or further official guidance is released.