Chapter 7 - Providing SMSF Advice
A significant change has now taken effect for Self-Managed Superannuation Funds (SMSFs) using Limited Recourse Borrowing Arrangements (LRBAs).
From 10 August 2026, SMSFs are generally prohibited from entering into a new LRBA to acquire residential real property.
The change was introduced through the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026. The legislation amended section 67A of the Superannuation Industry (Supervision) Act 1993 (SIS Act) and commenced 45 days after Royal Assent.
What has changed?
Previously, section 67A permitted an SMSF to use an LRBA to acquire an asset provided the asset was not money and the SMSF was otherwise legally permitted to acquire it.
This enabled compliant LRBAs to be used to acquire both residential and commercial property.
The legislation now adds an additional requirement where the asset being acquired is real property.
For real property to be an “acquirable asset” under an LRBA, it must now be:
business real property within the meaning of section 66 of the SIS Act.
The practical consequence is that, from 10 August 2026, an SMSF can generally no longer establish a new LRBA to purchase an ordinary residential investment property.
Can an SMSF still purchase residential property?
Yes.
The change does not prevent an SMSF from owning or purchasing residential property altogether.
An SMSF may still purchase residential property using its existing cash or other available fund assets, provided the acquisition otherwise complies with the SIS Act, the fund's trust deed and investment strategy.
What has been restricted is the SMSF's ability to borrow to acquire residential real property.
Accordingly:
an SMSF may still purchase residential property without borrowing;
existing qualifying residential property LRBAs may continue;
new LRBAs may continue to be used for qualifying business real property; and
LRBAs involving non-real-property assets remain subject to the ordinary section 67A requirements.
What is business real property?
Business real property is broadly real property used wholly and exclusively in one or more businesses, subject to the detailed requirements and exceptions contained in the SIS Act.
Typical examples may include:
offices;
factories;
warehouses;
retail premises;
workshops; and
other commercial premises used in carrying on a business.
However, advisers should not assume that property is business real property simply because it is described as “commercial property”.
Mixed-use property, vacant land, property containing a residential component or unusual leasing arrangements may require specialist legal or SMSF advice before an LRBA is considered.
What happens to existing residential property LRBAs?
The new rules operate prospectively.
Existing LRBAs entered into before commencement are generally protected and are not required to be unwound simply because the underlying asset is residential property.
The transitional provisions also protect certain acquisitions where the relevant property purchase contract was entered into before commencement, even where settlement occurs later.
Existing qualifying borrowings may also generally be refinanced without losing the transitional protection.
Accordingly, advisers should not tell existing SMSF clients that they are required to sell residential property or repay their existing LRBA solely because of the legislative change.
Key date: 10 August 2026
The amendment received Royal Assent on 26 June 2026 and commenced on the 45th day after Royal Assent — 10 August 2026.
As a result, the key distinction for advice purposes is whether the LRBA and relevant acquisition fall within the pre-commencement transitional provisions or are a new arrangement entered into on or after 10 August 2026.
Where there is any uncertainty about the application of the transitional provisions, advisers should obtain specialist legal or SMSF advice before proceeding.
Impact on financial advice
This change has a direct impact on SMSF strategy advice.
Advisers should immediately ensure that advice templates, strategy documents, SOA wording and modelling do not recommend a new residential property LRBA as an available strategy.
For new advice provided from 10 August 2026, an adviser should not recommend that a client:
establish an SMSF, rollover their superannuation and borrow through an LRBA to purchase an ordinary residential investment property.
That strategy is no longer generally available under section 67A.
Where a client wants exposure to residential property through superannuation, advisers will need to consider other lawful alternatives, which may include:
purchasing residential property outright using available SMSF cash;
obtaining property exposure through listed or unlisted property investments;
retaining investments through an APRA-regulated superannuation fund;
considering investments outside the superannuation environment; or
where appropriate, considering business real property that satisfies the SIS Act requirements.
Any recommendation must, of course, still satisfy the adviser's best interests duty and related advice obligations.
Existing clients considering an LRBA
Particular care should be taken with clients whose advice commenced before 10 August 2026 but whose transaction had not been completed by that date.
Do not assume that an earlier SOA or recommendation is sufficient to grandfather an arrangement.
The transitional treatment depends on the legal requirements contained in the legislation and the circumstances in which the borrowing arrangement and property acquisition were entered into.
Where the transaction was incomplete at commencement, advisers should confirm that the arrangement qualifies for transitional protection before recommending that the client proceed.
Existing residential LRBA clients
Clients who already hold residential property through an SMSF LRBA are not automatically affected.
However, future advice may need to consider the practical consequences of the new restrictions, including:
refinancing availability;
lender appetite for grandfathered residential SMSF loans;
interest rates and lending conditions;
liquidity;
loan repayment strategies;
whether the property continues to meet the client's retirement objectives; and
the potential difficulty of replacing an existing residential property if it is sold.
The legislative change does not of itself create a requirement to dispose of an existing residential property acquired through a valid grandfathered LRBA.
Compliance position
Effective immediately, advisers should treat new SMSF residential property LRBAs as a prohibited strategy unless the property satisfies the business real property requirements or a valid transitional provision applies.
Before recommending any new LRBA involving real property, advisers should establish and document:
whether the property constitutes business real property;
how the property satisfies the section 66 definition;
whether the proposed borrowing satisfies section 67A;
whether the SMSF trust deed permits the borrowing;
whether the strategy is consistent with the SMSF investment strategy;
liquidity and diversification considerations;
borrowing costs and repayment capacity;
the client's retirement objectives;
reasonable alternative strategies; and
any related-party or conflict-of-interest issues.
Where the status of the property as business real property is uncertain, advisers should obtain appropriate specialist advice before proceeding.
Key message for advisers
The change can be summarised simply:
From 10 August 2026, an SMSF can generally no longer enter into a new LRBA to acquire residential real property.
SMSFs can still acquire residential property using available fund assets without borrowing.
Existing qualifying residential LRBAs are generally grandfathered, while new borrowing for real property is now restricted to property that satisfies the SIS Act definition of business real property.
Advisers should ensure that all SMSF advice provided from 10 August 2026 reflects this change.