SMSF Property Borrowing: What the Proposed 2026 Changes Could Mean for Property Buyers
Australia’s rules for property borrowing through a Self-Managed Super Fund are changing.
From 10 August 2026, SMSFs will generally no longer be able to establish a new Limited Recourse Borrowing Arrangement to purchase an ordinary residential investment property.
This is an important development for people considering purchasing a house, townhouse, apartment or other residential property through their superannuation.
To better understand the changes, we recently spoke with Lily Torio of Savvy Tax, who provided general insights into the legislation and the issues SMSF trustees should consider.
As Lily explained, there are still grey areas surrounding how some property uses and transaction structures will be treated. Professional discussions are continuing as accountants, financial advisers, lawyers, lenders and regulators work through the practical application of the new rules.
For that reason, buyers should not rely on general information alone. Anyone considering an SMSF property purchase should obtain advice based on their circumstances before signing a contract or entering into a borrowing arrangement.
What Is an SMSF Limited Recourse Borrowing Arrangement?
A Self-Managed Super Fund, commonly known as an SMSF, is a private superannuation fund managed by its members.
The members are normally also the individual trustees of the fund or directors of its corporate trustee. They are responsible for the fund’s investments, administration and compliance with superannuation and taxation law.
A Limited Recourse Borrowing Arrangement, or LRBA, allows an SMSF to borrow money to acquire a particular asset.
The property is generally held through a separate holding trust while the loan is being repaid. If the fund defaults, the lender’s rights are usually limited to the property acquired under that arrangement rather than the SMSF’s other assets.
These arrangements can involve detailed legal, lending, taxation and compliance requirements.
What Is Changing on 10 August 2026?
From 10 August 2026, an SMSF entering into a new LRBA to acquire real property will generally only be able to do so where the property qualifies as business real property.
In practical terms, an SMSF will generally no longer be able to establish a new LRBA to purchase an ordinary residential rental property, such as:
- A house leased to residential tenants
- An apartment or unit
- A townhouse
- A residential duplex
- A house-and-land investment
- Most off-the-plan residential properties
Existing compliant arrangements entered into before the commencement date may continue under the transitional provisions.
However, buyers should not assume that submitting a finance application, paying a holding deposit or making an offer before 10 August 2026 will necessarily protect the transaction. The relevant legal documents and the date on which the arrangement is considered to have been entered into will be important.
Why Business Real Property Matters
Under the incoming rules, real property acquired through a new SMSF Limited Recourse Borrowing Arrangement will generally need to qualify as business real property.
Business real property is broadly property used wholly and exclusively in one or more businesses. Common examples may include offices, retail premises, warehouses, factories, workshops and medical or professional suites.
However, the classification of a property is not determined solely by whether it appears residential or commercial. The property’s actual and intended use, the nature and scale of the activities conducted there, and the relevant legal structure may all need to be considered.
For example, a residential property used for short-term accommodation through a platform such as Airbnb may potentially be treated differently from a standard long-term rental property. However, listing a property on Airbnb does not automatically mean that it qualifies as business real property.
The SMSF may need to demonstrate to the Australian Taxation Office that the property is being used wholly and exclusively in a genuine business. Relevant factors may include:
- The regularity and scale of the activity
- The services provided to guests or customers
- The level of active management involved
- Whether the activity is conducted in a businesslike manner
- Business registrations, systems and records
- Financial and operational documentation
- The property’s zoning and permitted use
- Whether any private use occurs
- The overall facts and structure of the arrangement
The passive receipt of rent from a property may not, by itself, amount to carrying on a business.
According to the Savvy Tax accountant, this remains an area of ongoing professional discussion and should be approached cautiously. The final treatment will depend on the legislation, ATO interpretation and the specific facts of each arrangement.
Anyone considering using an SMSF LRBA to acquire property for business purposes should obtain written legal, taxation and financial advice before proceeding. The property should not be promoted as automatically eligible for SMSF borrowing without professional confirmation.
Can an SMSF Still Purchase Residential Property?
Yes.
The changes do not prevent SMSFs from owning residential property. They principally restrict the use of new borrowing arrangements.
An SMSF may still be able to purchase residential property outright using the fund’s available cash, provided that:
- No new LRBA is used to finance the acquisition
- The purchase is permitted under the SMSF trust deed
- The property is acquired for investment purposes
- The investment is consistent with the fund’s investment strategy
- The transaction satisfies the sole purpose test
- Related-party and private-use restrictions are followed
- The fund retains sufficient liquidity for its other obligations
SMSF members and their relatives generally cannot live in a residential property owned by the fund or rent it from the fund.
Can Several People Pool Their Super to Purchase a Property?
An SMSF may have up to six members. Each member must generally be an individual trustee or a director of the fund’s corporate trustee.
This may allow several eligible members to hold their superannuation savings in the same SMSF.
The fund may then use its combined available cash to purchase an investment property without taking out a loan.
For example, where the SMSF’s six members collectively have enough money in the fund to cover the purchase price and transaction costs, the SMSF may potentially purchase an eligible residential investment property outright.
However, this does not mean that six people can informally combine separate SMSFs for a particular purchase.
They may need to:
- Establish or join one SMSF
- Roll eligible superannuation benefits into that fund
- Become properly appointed trustees or directors
- Update the fund’s trust deed where necessary
- Develop an appropriate investment strategy
- Agree on how the fund will be managed
- Consider each member’s retirement objectives and time horizon
- Address what will happen if a member dies, retires, becomes incapacitated or wants to leave the fund
Adding members purely to increase the fund’s purchasing power can create substantial governance and relationship risks.
All members share legal responsibility for the SMSF’s compliance. A dispute between members could also affect the management or sale of the property.
Professional advice should therefore be obtained before forming or restructuring a multi-member SMSF.
The Importance of an Investment Strategy
Mrs. Torio also emphasised that buyers should speak with a licensed financial adviser to develop an investment strategy suited to the fund and its members.
An accountant can provide important taxation, accounting and compliance information. However, personal advice about whether a particular property or SMSF strategy is suitable will generally need to come from an appropriately licensed financial adviser.
The SMSF’s investment strategy should consider matters such as:
- The members’ retirement objectives
- Each member’s age and expected retirement date
- Risk tolerance
- Expected investment returns
- Diversification
- Cash-flow requirements
- Liquidity
- Insurance needs
- The fund’s ability to pay expenses and member benefits
- The concentration of the fund’s assets in one property
- The proposed holding period
- The consequences of a member leaving the fund
ASIC’s Moneysmart guidance also explains that SMSF members are responsible for making investment decisions and keeping the fund compliant. It recommends carefully assessing the responsibilities, costs and risks before establishing or using an SMSF.
Property should not be selected first and an investment strategy written afterwards simply to support the purchase.
The strategy should guide the investment decision—not merely justify a transaction that has already been chosen.
What Happens to Existing SMSF Property Loans?
Existing compliant residential LRBAs entered into before 10 August 2026 are generally expected to be protected.
Trustees will not ordinarily be required to:
- Sell the property
- Repay the entire loan immediately
- Close the existing LRBA
- Transfer the property out of the SMSF
- Unwind an otherwise compliant holding trust
The arrangement must continue complying with the applicable superannuation, taxation and lending requirements.
Buyers relying on the transitional provisions should obtain legal confirmation that their arrangement was entered into before the legislative cutoff.
Can an Existing SMSF Loan Be Refinanced?
Existing protected LRBAs may generally continue to be refinanced after the commencement date.
However, refinancing will usually need to replace the existing debt without materially increasing the amount borrowed.
Refinancing may be considered where the fund is seeking:
- A different lender
- A lower interest rate
- Revised loan terms
- Replacement of the existing outstanding debt
Borrowing additional funds, changing the underlying asset or substantially restructuring the arrangement may not receive the same transitional protection.
Advice should be obtained before changing the loan, security documents, holding trust or borrowing structure.
What Does the Deadline Mean for Buyers Currently Looking for Property?
An SMSF property transaction generally involves more than receiving loan pre-approval.
Depending on the circumstances, buyers may need to arrange:
- The SMSF trustee structure
- An appropriate trust deed
- A documented investment strategy
- Finance approval
- A separate holding or bare trust
- The correct purchasing entity
- A property valuation
- Building, pest or strata investigations
- Contract review
- Loan and security documents
- Settlement arrangements
These steps can take time.
Buyers should not assume that starting the process before 10 August 2026 will be sufficient. The timing and legal status of the contract and borrowing arrangement will need to be assessed.
What Could the Changes Mean for Property Investors?
Some SMSF buyers may attempt to finalise eligible residential borrowing arrangements before 10 August 2026.
After the deadline, SMSFs that do not have enough cash to purchase a residential property outright will generally have fewer options for entering the residential property market.
However, SMSF borrowing is only one part of overall residential investment activity.
Property prices and rental demand will continue to be influenced by factors such as:
- Interest rates
- Lending conditions
- Population growth
- Employment
- Housing construction
- Rental supply
- Government housing programs
- Broader investor and owner-occupier activity
Final Considerations
From 10 August 2026, an SMSF will generally only be able to use a new LRBA to acquire real property that qualifies as business real property.
Existing compliant arrangements may continue, while SMSFs with sufficient available capital may still be able to purchase residential investment property without borrowing.
An SMSF may also have up to six members, allowing the assets of members within the same fund to be pooled. However, establishing or restructuring a multi-member SMSF requires careful consideration of legal responsibilities, member objectives, governance and exit arrangements.
The potential use of residential-looking property for a business activity, including Airbnb or short-term accommodation, remains an area requiring particular caution. Eligibility should not be assumed without specialist advice and clear evidence of the property’s genuine business use.
As Savvy Tax's accountant, Lily Torio, advised, there are still grey areas and ongoing professional discussions about how some arrangements will be treated.
Before making a decision, buyers should consult:
- A licensed financial adviser to develop an appropriate investment strategy
- An SMSF accountant for taxation, accounting and compliance advice
- An SMSF solicitor for legal and structural advice
- A suitably experienced lender or mortgage broker for borrowing requirements
Timing is important, but suitability, compliance and long-term retirement outcomes should remain the primary considerations.
Need Professional Advice?
For taxation, SMSF compliance and property-related accounting advice, contact Lily at Savvy Tax on 0432 610 180 or email [email protected].
For assistance with buying, selling or investing in property, speak with the team at RPN Global Sales on 0434 056 728 or email [email protected].
Professional advice should always be tailored to your individual circumstances.
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Disclaimer
This article contains general information about SMSFs, property borrowing and NSW property market conditions.
Comments attributed to Savvy Tax represent general observations provided during our discussion and should not be treated as personal financial, taxation, legal or investment advice.
The legislation, ATO interpretation and professional guidance may continue to develop. The treatment of business real property, short-term accommodation and transitional arrangements will depend on the specific facts and documents involved.
This article has been prepared without considering your objectives, financial situation or needs. Before establishing or changing an SMSF, entering into an LRBA, combining members within one SMSF, signing a property contract or making an investment decision, obtain independent advice from appropriately qualified and licensed professionals.
