Key Highlights

• A new LRBA generally cannot be used to acquire ordinary residential property from 10 August 2026.

• Yes. An ungeared purchase remains possible if it complies with the fund’s strategy and other SMSF rules.

• Existing and qualifying grandfathered arrangements may continue, including permitted refinancing.

• Trustees may examine ungeared assets, Business real property or non-property investments within a documented strategy.

The change is real, but it is narrower than the alarm suggests. As of 10 August 2026, an SMSF can no longer enter a new limited recourse borrowing arrangement (LRBA) to buy residential property. For trustees who had planned to gear into a rental home through their fund, that particular door has closed. Yet the reform leaves a surprising amount intact. This article sets out precisely which new borrowing arrangements are affected, and then turns to the legitimate Options that remain — without recommending any specific property or strategy.

Exactly what is affected

The restriction comes from Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026 and applies to LRBAs entered into on or after 10 August 2026. Under the new rule, a new LRBA can be used to acquire real property only where that property is business real property under the SIS Act 1993. Because standard residential property does not meet that test, a new LRBA can no longer fund it.

The scope is important. Only new residential LRBAs are affected. The reform does not touch cash purchases, it does not affect business real property borrowing, and it does not disturb arrangements already in place before the commencement date. In other words, it removes one specific tool — new gearing over residential housing — while leaving the rest of the toolkit available.

Option one: buy with the fund's own cash

The most direct remaining pathway is an ungeared purchase. An SMSF with sufficient cash and Assets can still buy residential property outright. There is no borrowing, so the LRBA restriction is simply not engaged. This pathway remains subject to the usual rules — the sole purpose test, the prohibition on acquiring residential property from a related party, arm's-length dealing and the in-house asset rules — but none of these changed in 2026. For funds with strong liquidity, a cash purchase preserves residential exposure entirely within the law.

Option two: business real property, with or without borrowing

Where trustees want property exposure and are open to commercial assets, business real property remains available both for outright purchase and for new LRBA borrowing. Business real property is, broadly, real estate used wholly and exclusively in one or more businesses — for example, commercial premises leased to an operating business. This is the one category of real property that a new LRBA may still fund, so trustees who specifically want to borrow inside their SMSF may find their focus shifting from residential to commercial assets.

Option three: existing and grandfathered arrangements

The legislation deliberately protects arrangements already under way. LRBAs entered into before 10 August 2026 continue, so existing residential borrowings are not disturbed and can run to completion. Refinancing of a pre-10-August 2026 LRBA remains permitted, which means trustees with an existing residential borrowing can still seek better terms or a new lender without losing their grandfathered position. And binding contracts to acquire real property exchanged before 10 August 2026 are protected, so an associated LRBA can proceed even if settlement occurs afterwards. These provisions mean that many trustees who were already committed are unaffected in substance.

Hypothetical example

Consider the Delgado Super Fund, which entered a residential LRBA in 2024. In 2026, the trustees are approached by a lender offering a lower interest rate. Because refinancing of a pre-10-August 2026 LRBA is expressly permitted, they can refinance the existing borrowing without breaching the new rule. Separately, they hold spare cash and are considering additional property exposure. They cannot use a new LRBA for a residential unit, but they could buy a commercial premises through a new LRBA, or buy residential property outright with cash from an unrelated seller. This example is illustrative only and not advice, and does not confirm any particular arrangement qualifies.

Risks and mistakes to avoid

Trustees should be careful not to assume that any restructure of an existing Loan preserves grandfathering; a change significant enough to constitute a new arrangement could fall outside the exception. They should not treat Market Value as a workaround for the related-party residential rule, which continues to prohibit acquiring residential property from a member or relative. And they should resist over-concentration: directing a large share of the fund into a single property can jeopardise Liquidity needed for pensions and expenses. These are strategic cautions, not recommendations.

What trustees should watch next

Anyone relying on a transitional provision should keep clear records of contract dates and loan terms, as these may be needed to establish that an arrangement qualifies. Trustees exploring business real property should confirm the asset genuinely meets the SIS Act definition. And all should monitor ATO guidance, which may refine how the restriction and its exceptions apply in practice.

Conclusion

New residential SMSF loans are out, but the sector is far from closed to property. Cash purchases, business real property borrowing, and a robust set of grandfathering provisions all remain available. The right pathway depends entirely on a fund's assets, liquidity and objectives, and the interaction of these rules can be intricate. Trustees may wish to seek appropriately qualified financial, legal or tax advice relevant to their circumstances before acting, and this article offers no personalised property recommendation.