SMSF Residential Borrowing After 10 August 2026

Start with the regulator, because the regulator wrote a heading about this. The ATO's page on the change carries the heading ‘LRBAs are not banned’, and under it: funds can still borrow or maintain a borrowing under an LRBA to acquire an asset, and the changes restrict real property assets to business real property. That page is QC 107811, published 28 July 2026.

Borrowing inside a super fund was never the normal case. Super law stops an SMSF from borrowing money, and the limited recourse borrowing arrangement is one of the few ways around that. So the LRBA was always the exception. What moved on 10 August 2026 is how far the exception reaches over real property, and the ATO says there are no changes to how LRBAs operate, or to any other exception to the general prohibition on borrowing.

Nothing was added to the law to stop a fund borrowing. The ATO sets out the mechanism: a Parliamentary Amendment agreed on 25 June 2026 changed the meaning of an acquirable asset, so real property that isn't business real property is no longer something an LRBA can buy. The test attaches to the asset. That one point explains why the lender makes no difference, and why arrangements already running are untouched.

Residential can still qualify in one narrow case, and the ATO says it directly: ‘If the residential real property meets the definition of business real property, these can be acquired and financed under an LRBA’. Wholly and exclusively used in a business is a high bar for a house, so read the definition below before going anywhere near it.

Buy residential outright with money already in the fund, keep and refinance an LRBA it entered before 10 August 2026, and borrow for business real property that passes the test at the start and keeps passing it. The ATO's guidance, QC 107811, published 28 July 2026, also puts an earlier contract outside the change. A binding contract exchanged before 10 August 2026 sits outside the change even where settlement or the LRBA happens later.

For how super and property fit together across the whole path, read the guide on using super to buy an investment property, and the Queensland SMSF property page sets out what FAA does around a purchase.

Until this change it mattered mostly to business owners buying their own premises through the fund, where it has always sat on the short list of assets a fund may buy from a related party.

The ATO's detailed view of the term sits in a ruling, SMSFR 2009/1. Its short definition is land and buildings used wholly and exclusively in one or more businesses. One carve-out sits under that, for real property used in a primary production business: a private dwelling on the land doesn't disqualify it, as long as that dwelling's area is no more than 2 hectares and the whole property's main use isn't domestic or private.

No web page can tell you whether a particular property meets it, and this one won't try. A specialist SMSF accountant or solicitor is who settles it for a real property, and connecting clients with those specialists is something FAA does.

The rule is written twice. Once for the moment the LRBA is entered into, and once for the whole time it runs.

An empty shop isn't automatically a breach. The ATO says a property doesn't stop being business real property only because the owner is looking for a new tenant, but it does stop if the owner abandons plans to lease it. That distinction only matters because the test runs the whole way: the property has to be business real property on day one and still be business real property on the last day of the loan. Where it stops, the ATO says the fund has breached the general prohibition on borrowing and compliance action may apply.

That makes a change of use, or a decision to stop leasing, a question for the fund's own advisers before it happens. FAA Property is a real estate agency, not an SMSF compliance adviser, and nothing here is advice about your fund.

Borrowing from your own company, or from a family trust, feels like it should sit outside a rule aimed at banks.

It doesn't. The ATO puts it under its own heading: the changes apply where the arrangement is an LRBA, whether the lender is a bank, a non-bank lender or a related party, and the identity of the lender does not determine whether the real property must be business real property. The same sentence appears on the ATO's rules page for entering an LRBA.

There's no lender-side answer to go looking for, so there's nothing here to shop. FAA doesn't lend money. Questions about a loan belong with a lender or a licensed credit adviser, and questions about the fund belong with your SMSF specialist.

Most coverage of the change names politicians and loan volumes. The law itself has a title and a number, and both are public.

The change came through the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, No. 49 of 2026, and Schedule 5 of it is headed ‘Limited recourse borrowing arrangements’. Assent was 26 June 2026, and the Act's own commencement table gives Schedule 5 the date 10 August 2026. The ATO describes the same change as a Parliamentary Amendment agreed on 25 June 2026 that is now law, applying to arrangements entered into on or after 10 August 2026.

Read the Act on the Federal Register of Legislation for the primary source, and read the ATO for what it means in practice. This page carries a visible last reviewed date, because a page about a rule this new dates fast.

Two older rules stop anyone living in the fund's house, and neither of them changed. Every investment a fund makes has to be made and kept for one purpose: paying members retirement benefits, or death benefits if a member dies before retirement. The ATO's published example of a breach is a related party holidaying in the fund's investment property. Then the in-house asset rule does the mechanical work. Leasing a fund asset to a related party makes it an in-house asset, in-house assets are capped at 5% of the fund's total assets by market value, and business real property leased between the fund and a related party is an exception to that cap. Residential isn't on the exception list.

So a business owner can lease their fund's commercial premises from the fund, as long as the lease is made on an arm's length basis and reflects market value, and a member can't rent the fund's house. If in-house assets go over 5% at the end of a financial year, trustees have to write a plan to bring them back under it by the end of the next year, and then carry the plan out. That's trustee work, and it sits with the fund's accountant.

Related party is also wider than almost anyone expects. It covers every member of the fund, their relatives, their business partners and any spouse or child of those partners, plus any company or trust the member or their associates control or influence, and standard employer-sponsors. Relative reaches a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the member or their spouse. A fund can't buy an asset from a related party at all unless the price reflects market value and the asset is a listed security, business real property, or an in-house asset inside the 5% limit.

One term, two jobs. Business real property has always been on that short list for related-party purchases, and from 10 August 2026 it's also the only real property class a new LRBA can buy.

Keeping an existing LRBA means the old mechanics still bind you. Borrowed money still has to buy a single asset, or a collection of identical assets treated as one. It can pay acquisition costs like loan establishment fees or stamp duty, and it can pay to maintain or repair the asset, but it can't be used to improve one, and the ATO's example of the breach is building a house on vacant land the fund already owns. An existing fund asset can't be put into an LRBA. The asset sits in a holding trust, recourse against the trustee is limited to rights over that asset, and the fund can take legal ownership once the loan is repaid.

On multiple titles: several real property titles can't be bought under a single LRBA unless what's being bought is distinctly identifiable as a single asset, and from 10 August 2026 a collection of assets treated as one asset that is real property has to meet the business real property definition.

The ATO treats refinancing as a new loan contract for the same asset, with the same lender or a new one, and says the change doesn't reach existing arrangements or their refinancing. Varying the terms is a different question, because a significant change to an LRBA ends the arrangement and starts a new one. Ask the fund's adviser before signing anything that changes an arrangement already in place.

Who's writing this, and what they're licensed to do. FAA Property Pty Ltd is a licensed Queensland real estate agency, Office of Fair Trading licence 4220395, type real estate agent, current to 5 June 2027. One office, in Maroochydore, and no branch anywhere else. A real estate licence isn't a financial services licence, so nothing on this page is advice about your fund or your money. FAA doesn't lend money.

Then the money, in FAA's own published words:

FAA Property earns a commission from builders and developers when a property purchase proceeds. The strategy session itself costs you nothing. Because we're paid by the supply side, you should weigh our recommendations with that in mind.

Everything above this section rests on the ATO and on the Act, both dated.

The rule already applies to any arrangement entered into on or after 10 August 2026, so there's no clock on this page and no reason to rush a fund into anything. If it's useful to see what a residential property costs to hold, book an SMSF Property Strategy Call and bring your accountant's questions with you. FAA can model the numbers and make the introductions to specialist SMSF accountants and solicitors. It can't tell you whether your fund should buy, and it isn't an SMSF compliance adviser.