A late Senate amendment has settled a long-running debate: SMSFs will soon be banned from borrowing to buy residential property. The change is now law, and it commences 10 August 2026 — with some important carve-outs for existing arrangements.

This is general information only — it isn't personal financial, legal or tax advice. If your SMSF currently uses, or is considering, a Limited Recourse Borrowing Arrangement (LRBA), speak with a licensed adviser and your SMSF's accountant before acting.

What changed, and when

A Senate amendment moved by the Australian Greens (Senator Nick McKim) was agreed to on 23 June 2026, and the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 — which included the LRBA changes — received Royal Assent on 26 June 2026. The ban commences 45 days later, on 10 August 2026. From that date, SMSFs can no longer enter into a new LRBA to acquire residential property.

See Sladen Legal's summary of the passed legislation for the legal detail.

Business real property is unaffected

The ban only targets residential property. An SMSF can still use an LRBA to acquire business real property — property used wholly and exclusively in a business, as defined in section 66 of the SIS Act — including buying premises to lease back to a related business at market rent. This remains one of the more popular SMSF strategies for business owners.

One wrinkle worth flagging: the "business real property" test turns on how the property is actually used, not its type. A property that looks commercial but isn't wholly used in a business may not qualify — and conversely, some property types not traditionally thought of as "commercial" can still meet the test if genuinely business-used. See SMSF Adviser's coverage of the definitional confusion this has already created.

Grandfathering: existing arrangements are protected

If your SMSF already has a residential LRBA in place before 10 August 2026, it isn't unwound — existing arrangements are grandfathered. Refinancing a pre-commencement borrowing is also protected, for example if your current lender exits the market or becomes uncompetitive. However, the protection isn't unlimited: material changes to an existing arrangement — a loan top-up, an equity release, additional security, or a change to the underlying asset — can be treated as a new arrangement and caught by the ban. Straight refinancing of the same loan on the same property should be fine; expanding it generally won't be.

Acquisitions already underway are protected too

The legislation also protects deals in progress: if your fund exchanges contracts to buy a residential property before 10 August 2026, the LRBA remains valid even if settlement happens afterwards — for example, a contract signed in early August with a November settlement is still covered.

Property groups and the SMSF industry have criticised the ban's speed and some of its drafting — particularly the business real property definition — as leaving genuine ambiguity for funds that don't fit neatly into "residential" or "commercial" categories. Expect further guidance from the ATO as the 10 August 2026 date approaches.

What SMSFs can still do

  • Buy residential property without borrowing — an unleveraged purchase remains permitted, subject to the fund's investment strategy and diversification requirements.
  • Use an LRBA for genuine business real property.
  • Keep an existing residential LRBA running, and refinance it on materially the same terms, without losing grandfathered status.

The window before 10 August 2026

Trustees who were already planning a residential LRBA have a narrow window to exchange contracts before the ban takes effect. This isn't a call to rush a major financial decision — the acquisition still needs to fit the fund's strategy and genuinely stack up — but it is a hard deadline for anyone with a residential LRBA purchase already in motion.

Sources

The residential LRBA door is closing, not slamming — existing arrangements are protected, and business real property remains a live strategy. But for anyone weighing a new residential purchase inside an SMSF, 10 August 2026 is now a real deadline.