Changes to SMSF limited recourse borrowing arrangements for property
Important Changes to SMSF Borrowing Arrangements from 10 August 2026
The Australian Taxation Office (ATO) has announced significant changes to the rules governing Limited Recourse Borrowing Arrangements (LRBAs) for Self-Managed Super Funds (SMSFs). These changes take effect from 10 August 2026 and may impact SMSFs looking to purchase property using borrowed funds.
What is Changing?
From 10 August 2026, SMSFs entering into a new LRBA to acquire real property will only be able to use borrowed funds to purchase business real property. Business real property generally refers to land and buildings that are used wholly and exclusively in a business. This means that, in most cases, SMSFs will no longer be able to use an LRBA to purchase residential investment properties unless the property qualifies as business real property.
Are LRBAs Being Banned?
No. The ATO has confirmed that LRBAs are not being abolished. SMSFs can still borrow under an LRBA, but the rules restricting the types of property that can be acquired with borrowed funds have changed.
What About Existing Loans?
The good news is that existing arrangements are generally protected.
The new rules will not apply if:
Your SMSF entered into an LRBA before 10 August 2026.
Your SMSF refinances an existing LRBA after 10 August 2026.
Your SMSF exchanged a binding contract to acquire the property before 10 August 2026, even if settlement or finance occurs later.
This means many existing property investments funded through an LRBA will not be affected by the changes.
Ongoing Requirements for Business Real Property
For new LRBAs established from 10 August 2026:
The property must qualify as business real property when the LRBA is entered into.
The property must remain business real property for the entire duration of the loan arrangement.
If the property ceases to meet the business real property requirements, the SMSF may be considered in breach of the borrowing rules and could face compliance action from the ATO.
Can SMSFs Still Invest in Residential Property?
Yes. SMSFs can still invest in residential property, provided all other SMSF investment rules are met. However, from 10 August 2026, residential property that does not qualify as business real property generally cannot be financed through an LRBA.
What Should SMSF Trustees Do?
If you are considering purchasing property through your SMSF, it is important to review your plans as soon as possible. The timing of contracts and finance arrangements may affect whether the new rules apply to your situation. We recommend speaking with your adviser before entering into any borrowing arrangements to ensure your SMSF remains compliant and your investment strategy continues to meet your retirement objectives.
Need Advice?
If you are an SMSF trustee and would like to discuss how these changes may affect your current or future property investments, please contact our office. We can help you assess your options and ensure your SMSF remains compliant with the latest ATO requirements.
Source: Australian Taxation Office, Changes to Limited Recourse Borrowing Arrangements, published 28 July 2026. Link to article: here
If you have any questions in relation to the matters discussed in this blog, please get in touch with us.