Key Highlights

  • The ATO may need to check up to 30,000 SMSFs that reported property purchases.
  • The purchases were made before borrowing was limited to Business real property on 10 August.
  • Contracts, bare trusts and lender talks are likely to decide which deals qualify.
  • The ATO's review could affect trustees who believed their deals were grandfathered.

If your self-managed super fund agreed to buy residential property with borrowed money shortly before the ban took effect, the paperwork behind that deal is about to matter. The ATO has said it may need to check up to 30,000 funds that reported a property Acquisition before 10 August 2026, according to reports. Whether those purchases fall on the right side of the cut-off could come down to contracts, trust deeds and Loan records.

What changed on 10 August

Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which includes a schedule dealing with SMSF limited recourse borrowing arrangements (LRBAs), new SMSF borrowing to buy property is limited to business real property from 10 August 2026.

An LRBA lets an SMSF borrow to buy a single asset, which is held on trust (usually a bare trust) until the loan is repaid. If the fund defaults, the lender's recourse is limited to that asset, protecting the fund's other savings.

In practice, the change means an SMSF can no longer enter a new LRBA to buy a residential home or unit. Borrowing to buy commercial premises, such as an office or Warehouse that meets the business real property test, remains possible.

Arrangements already in place before the cut-off are generally treated differently, which is why the timing of each purchase is now under the microscope. The ATO has a dedicated page on the changes to LRBAs, and trustees caught near the line will want to read it closely.

Why up to 30,000 funds may be checked

Reports on 3 November said that the ATO "recently said it may need to check up to 30,000 funds that reported a property acquisition before 10 August".

The figure is the ATO's estimate of the possible scale of checks, as reported by the trade publication. It does not mean 30,000 funds have done anything wrong, or that every one will be contacted. The report did not say how the checks would be carried out or when they would begin.

The checks would be about confirming whether a reported acquisition was genuinely locked in before the cut-off, and therefore whether it qualifies for the older rules.

The documents that may decide it

Speaking at the Tax Institute's National Superannuation Conference in Melbourne, Dan Butler of DBA Lawyers said the ATO is focusing on "a binding contract to acquire real estate", even if settlement happens later.

That puts the contract date front and centre. A signed, unconditional contract dated before 10 August is likely to be the strongest evidence a Trustee can hold.

Butler flagged grey areas. "There's still not a lot of clear criteria for off-the-plan arrangements," he said.

On the borrowing side, he said: "It appears it would be good to at least have had some discussions with the financier."

Reports said that problem cases include funds where the bare trust that holds the property under an LRBA had not yet been set up, and purchases where the loan had not yet been approved. That is common with off-the-plan deals, where some lenders only assess the loan close to completion.

Some states also require the bare trust to exist when the property is acquired, which can create a mismatch between the contract and the borrowing structure.

Hypothetical example: an off-the-plan unit

Hypothetical example: the Nguyen Family Super Fund signs a contract on 1 August 2026 to buy an off-the-plan apartment for $600,000, with settlement due in mid-2027.

The trustees plan to pay $180,000 from fund Assets and borrow the remaining $420,000, a 70% loan-to-value ratio, under an LRBA.

If the ATO accepts the binding contract signed before 10 August as locking in the deal, the fund may be able to proceed with the borrowing. Assuming a 7% interest rate, the loan would cost $29,400 a year in interest. Against rental income taxed at the fund's 15% rate, that interest deduction would be worth up to $4,410 a year.

If the ATO decides the arrangement was not in place in time, for example because there was no bare trust and no lender contact before the cut-off, the fund may be unable to use an LRBA for the purchase. It would then need to find $420,000 from other fund assets or contributions before settlement, or face difficulty completing the deal.

The figures are illustrative only. Each fund's position depends on its documents, its contract terms and the ATO's assessment.

How this fits with other SMSF rules

The LRBA changes sit within a broader set of reforms affecting larger SMSFs.

The Division 296 tax, which applies from 1 July 2026, imposes an extra 15% on Earnings attributable to balances above $3 million and a further 10% above $10 million. The ATO's guidance says LRBA amounts are disregarded when working out a member's total super balance for the tax.

The ATO has also released draft rulings rewriting its SMSF borrowing guidance after the residential ban, with comments due by 27 November. Those drafts are guidance, not final, and could change.

Trustees with property in their funds face annual valuation and audit requirements regardless of the borrowing rules.

What to watch / key dates

  • 27 November 2026: comments close on the ATO's draft SMSF borrowing rulings.
  • The ATO's next steps on its review of the up to 30,000 funds that reported acquisitions before 10 August, including whether it publishes criteria for off-the-plan contracts.
  • Any further ATO guidance on what evidence of finance discussions or bare trust arrangements it will accept.
  • 2025–26 SMSF annual returns and audits, which will record the property and borrowing details the ATO uses to check eligibility.
  • How lenders handle off-the-plan LRBA loans already in the pipeline, given some only assess applications close to completion.
  • 30 June 2027: the first total super balance test date for the Division 296 tax.

For trustees near the line, the practical point is that evidence created at the time, such as signed contracts, trust deeds and correspondence with lenders, is likely to carry more weight than documents prepared after the event. Specialist SMSF legal or tax advice can help assess an individual fund's position.