The SMSF property borrowing rules changed on 10 August. Here is where you actually stand.
If your fund owns a rental property and you have seen a headline about SMSF borrowing being banned, you have probably had a quiet moment of concern. Let us take the concern off the table first.
If your fund already has the loan in place, nothing has changed for you.
Now the detail.
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026 and commenced 45 days later, on 10 August 2026. It makes one operative change to the Superannuation Industry (Supervision) Act 1993. It inserts a new condition into section 67A(2), the section that sets out what a limited recourse borrowing arrangement is allowed to do.
The new condition says that where the asset being acquired is real property, that property must be business real property within the meaning of section 66.
That is the whole change. It is one sentence of legislation, and it does quite a lot.
What it means in practice
From 10 August 2026, a fund cannot enter a new limited recourse borrowing arrangement to buy a residential investment property. The geared residential property strategy inside super, which has been a feature of the sector since 2007, is closed to new arrangements.
What is not affected:
- Existing arrangements. If your fund already holds property under an LRBA, it continues exactly as before.
- Refinancing. You can still refinance an existing arrangement, including with a new lender.
- Contracts exchanged before 10 August 2026, even if they settle after that date.
- Buying property without borrowing. A fund with the cash can still purchase residential property outright, subject to the usual investment strategy and diversification considerations.
- Everything that is not real property. Listed shares, managed funds and other acquirable assets are untouched.
The part most commentary is getting wrong
Almost everyone is describing this as a ban on borrowing for residential property. That is a fair description of the practical effect, but it is not what the law says.
The law does not ask whether a property is residential or commercial. It asks whether the property is business real property. That definition was written in the 1990s for a completely different purpose, which was governing when a fund can acquire an asset from a related party and lease it back.
Applying it to borrowing produces some odd results. Some residential property does qualify, because business real property is about whether the land is used wholly and exclusively in one or more businesses. Some commercial property does not qualify, because it is not currently used in a business. Lifestyle blocks, hobby farms and vacant land held for future use are the holdings most likely to fall outside the definition. The treatment of off the plan commercial premises is still unclear and we are waiting on further guidance.
So if you are looking at a property and someone has told you confidently that it qualifies because it is commercial, that is not the test. Get it checked before you spend money on a contract.
What to do if your fund already holds property
Nothing urgent. But two things are worth doing this year.
Make sure the arrangement is documented properly. The bare trust or property custodian trust deed, the loan agreement, the evidence that repayments are being made from the fund, the lease if the property is leased to a related party. Auditors look at all of it, and the ATO has been paying more attention to related party arrangements generally.
And get the valuation right. That is a separate article, and it matters more than most trustees think