Key Highlights

•  Changes to limited recourse borrowing rules commenced on 10 August 2026, so real property acquired under a new LRBA must be business real property.

•  Existing arrangements are reported to be grandfathered, and contracts entered into before that date may settle under the earlier rules.

•  Alternatives such as unit trusts need strict compliance, including the 5 per cent in-house asset limit.

For more than a decade, a limited recourse borrowing arrangement was the standard way for a self-managed super fund to gear into a house or apartment. That door has now largely closed for new purchases. Changes to the borrowing rules commenced on 10 August 2026, and specialists are now turning their attention to the alternatives that remain and the compliance traps that come with them.

At the Auditors Institute's Auditors Day 2026 in Melbourne, institute ambassador Graeme Colley said SMSFs can still gain exposure to residential property through structures such as unit trusts, but only with strict discipline around superannuation law.

What changed on 10 August 2026

The ATO's limited recourse borrowing page, updated on 16 July 2026, confirms that legislative changes to LRBAs commenced on 10 August 2026 and that the ATO is updating its guidance to reflect the new rules.

According to analysis published by Accurium in July 2026, the change came through the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026. Accurium explains that the amendment adds a condition to the meaning of an "acquirable asset" in section 67A of the Superannuation Industry (Supervision) Act 1993, so that real property acquired under a new LRBA must be business real property. The commencement date was the 45th day after Royal Assent.

Professional commentary from Accurium and Aitken Partners indicates that arrangements already in place before 10 August 2026 are grandfathered, that contracts entered into before that date may settle afterwards under the earlier rules, and that existing arrangements can still be refinanced. Aitken Partners notes that refinancing should not increase the principal loan balance. Trustees should confirm the precise transitional position for their own arrangement with their adviser, lender and lawyer, because the ATO's detailed guidance is still being updated.

Why business use matters more than zoning

Accurium points out that the test turns on use rather than planning zone. Business real property is broadly land and buildings used wholly and exclusively in one or more businesses. A commercial building is not automatically business real property, and a residential-zoned property used entirely for a business may qualify. The ATO's ruling SMSFR 2009/1 remains the key reference for this assessment.

The unit trust route and its traps

Colley said an SMSF can invest in a unit trust that owns residential property. He noted that if a related party borrows to buy its own units, the trust itself may remain ungeared, and regulation 13.22C of the SIS Regulations could then apply. That regulation provides an exception from the in-house asset rules for certain ungeared related trusts, but it comes with strict conditions about borrowing, charges over assets and dealings with related parties.

He warned that client behaviour is often the real risk. Examples he gave included money flowing into the trust in ways that create gearing, or funds being held outside an authorised deposit-taking institution. If the trust becomes geared, a 50-50 split between the SMSF and related-party money could breach the 5 per cent in-house asset limit, and rising property values could push the fund over that limit on their own.

Practical considerations for trustees

Trustees weighing residential exposure now have several broad paths. They can buy property outright with cash, accepting the concentration and liquidity risk that brings. They can consider commercial property, where LRBAs remain available, keeping in mind that leases to related parties must be on arm's length terms. Or they can consider an indirect structure such as a unit trust, which requires ongoing monitoring rather than a set-and-forget approach.

Whichever path is considered, the investment strategy should explain how the asset fits the fund's objectives, liquidity needs and members' circumstances. Trustees should also expect their auditor to examine trust deeds, unit registers, bank accounts and valuations closely where a related trust is involved.

Hypothetical example

Imagine a hypothetical fund that holds 50 per cent of the units in a property trust, with the other 50 per cent held by a member's family company. If the family company later lends money to the trust to fund renovations, the trust could cease to meet the regulation 13.22C conditions. The SMSF's units might then count as in-house assets well above the 5 per cent limit, triggering a requirement to dispose of the excess.

Takeaway

Residential property has not disappeared from the SMSF investment menu, but the easy gearing option has gone for new purchases. Trustees who explore alternatives should treat compliance as an ongoing obligation, document their reasoning in the investment strategy, and seek advice before committing money to any structure that involves related parties.