Key Highlights

• LRBAs entered into before 10 August 2026 generally remain outside the new restriction.

• Yes, provided the transaction is a genuine refinancing that remains within the statutory protection.

• A qualifying binding contract exchanged before 10 August 2026 may receive transitional protection.

• The outcome depends on contract terms, dates and whether a restructure creates a new arrangement rather than a refinancing.

Much of the coverage of the 2026 SMSF borrowing changes has focused on what trustees can no longer do. For the many funds that already hold a geared property, the more relevant question is the opposite: does the new rule reach back and disturb an arrangement already in place? For most existing borrowers, the answer is that it does not. The legislation was deliberately drafted to protect arrangements already under way. This article focuses on the grandfathering provisions — how they work, who they cover, and the important caveat that whether any particular Loan qualifies always depends on the specific facts.

The change applies to new arrangements

The starting point is that Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 restricts new limited recourse borrowing arrangements (LRBAs). It applies to LRBAs entered into on or after 10 August 2026, confining new real-property borrowing to Business real property. The commencement is prospective: it targets arrangements entered into from that date, not those already established. That single design choice is why existing residential LRBAs are not swept up.

The three grandfathering categories

The ATO's SMSF newsroom guidance and the legislation identify three categories that remain unaffected.

First, LRBAs entered into before 10 August 2026. If your fund's borrowing was in place before that date, it continues on its existing terms. The restriction does not apply to it, and there is no requirement to unwind or convert it.

Second, refinancing of a pre-10-August 2026 LRBA. Refinancing is expressly permitted, so an existing borrower can generally move to a new lender or renegotiate terms without losing grandfathered status. This matters because trustees with older, higher-rate loans are not locked into them by the reform.

Third, binding contracts to acquire real property exchanged before 10 August 2026. Where a binding contract was exchanged before the commencement date, an associated LRBA can proceed even if settlement or the formal borrowing occurs afterwards. This protects buyers who had committed but had not yet completed.

Why "it depends on the facts" matters

It would be a mistake to read these categories as an automatic guarantee. Whether a given loan qualifies turns on details: when the LRBA was actually "entered into", whether a document amounts to a binding contract as opposed to a conditional or non-binding one, and whether a proposed refinancing genuinely refinances the same arrangement rather than creating a new one. Two funds with superficially similar histories can fall on opposite sides of the line because of a difference in dates or documents. For that reason, no individual reader should conclude that their own loan definitely qualifies. The prudent step is to confirm the position against the fund's records and, where needed, professional advice.

Hypothetical example

Consider the Whitlam Super Fund, which entered a residential LRBA in 2022. In late 2026, the trustees are offered a lower Interest Rate by a competing lender. Because refinancing of a pre-10-August 2026 LRBA is permitted, they can, in principle, refinance without breaching the new rule — provided the refinancing genuinely relates to the same borrowing. Separately, the Curtin super fund exchanged binding contracts to buy a residential property on 1 August 2026, with settlement set for September. Because the binding contract predates 10 August, the associated LRBA may proceed at settlement. Neither outcome is automatic; each depends on the documents and timing holding up. This example is illustrative only and not advice.

Risks and mistakes to avoid

The first risk is assuming grandfathering with no evidence. Trustees should be able to point to the date the LRBA was entered into, or the date binding contracts were exchanged, supported by contemporaneous documents. The second risk is inadvertently creating a "new" arrangement. A restructure that goes beyond refinancing — for example, changing the borrower, the security, or the fundamental terms in a way that constitutes a fresh LRBA — could fall outside the exception and be caught by the restriction. The third risk is conflating a pre-approval or handshake with a binding contract; only the latter engages the transitional protection. Care with documentation is the best defence.

What trustees should watch next

Trustees relying on grandfathering should keep their records in order, because in any future review the date and nature of the arrangement will be the decisive evidence. Those contemplating refinancing should confirm, ideally with advice, that the transaction preserves rather than forfeits their protected status. And all should monitor ATO guidance, which may further clarify what "entered into" means and how the transitional rules apply to particular fact patterns.

Conclusion

For existing SMSF property borrowers, the 2026 reform is far less disruptive than the headlines imply. The restriction is prospective, and three grandfathering categories protect established LRBAs, permitted refinancing, and pre-commencement binding contracts. But protection is not automatic — it depends on the specific facts of each arrangement. Trustees should verify their position rather than assume it, and may wish to obtain appropriately qualified professional advice to confirm that their loan falls within the transitional provisions.